What is a Health FSA?

Your employer's benefits package may include a health Flexible Spending Account (FSA). This  is an employer-owned account to help you pay for qualified medical expenses.  If you aren't eligible for a Health Savings Account (HSA)

  • An FSA is an employer-owned account. If you leave your employer, you cannot take an FSA with you.
  • Unlike a Health Savings Account (HSA), there is no requirement for a High-Deductible Health Plan. As long as your employer offers an FSA, it can complement any health plan.
  • Your employer takes money out of your paycheck, before the money is taxed (pre-tax), and puts it into your account. Your employer may also contribute to your FSA.
  • FSA funds can be used to pay for qualified medical expenses during the plan year. Your entire annual FSA election amount is available on day one of your plan (even if you haven't yet contributed the full amount to the account).
  • Subject to a "use it or lose it" rule. Unlike an HSA, funds don't carryover from year to year (see Grace Periods and Carryovers below). 

Tax Advantage

The amount you contribute to a health FSA is not subject to federal income tax or social security (FICA) tax—effectively adjusting your annual taxable salary. The taxes you pay each paycheck and collectively each plan year can be reduced significantly.

Eligibility

An FSA is sponsored by your employer as one of your employee benefits. FSAs can be offered with any type of health plan (unlike Health Savings Accounts).

You cannot contribute to an HSA and a health FSA at the same time. 

Can I pay for my family's expenses?

Employees may use their health FSAs to pay for or reimburse themselves for their own eligible medical expenses, as well as their spouses’ and dependents’ eligible medical expenses.

Grace Periods and Carryovers

FSAs operate under a "use it or lose it" rule, meaning if you don’t use the money in your FSA by the end of the plan year, the money will be forfeited. However, the IRS allows employers to choose one of two options (or neither): 

  • Rollover up to $500 of unused funds, or 
  • Provide a 2.5 month grace period (to spend down funds)

Under the rollover option, an FSA may allow participants to carry over up to $500 in unused money at the end of the plan year to be used to reimburse expenses incurred in the next year. The rollover does not count toward the annual maximum allowable contribution. Employers are not required to offer either of these options.

Generally, only expenses you incur during the plan year can be reimbursed from the funds in your FSA, but if your FSA has a grace period, you can use those unused funds in your FSA for expenses incurred during the grace period.

If you have funds in your FSA at the end of the year, consider scheduling a checkup, dental cleaning or similar appointment before the end of the year in order to spend down your funds.

Health Payment Card

Your employer may provide you with a healthcare payment card, similar to a debit or credit card, you can use to pay for eligible medical expenses. The funds will then be deducted from your FSA account.

FSA funds may be used only on eligible medical expenses that are not reimbursed or covered by another source. 

Recordkeeping

In most cases, you will have to submit receipts and other proof that you spent funds on a qualified medical expense, so make sure you retain your receipts, Explanation of Benefits (EOBs) and other documents.

Related Reading:

HSA, FSA, HRA Comparison Table
FSA Contribution Limits

Last updated 3/07/18

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