What’s a flexible spending account, and how can I use it?

Many FSAs are “front loaded,” meaning they’re fully funded at the beginning of the year, but the payroll deductions will split evenly throughout the year. After your FSA contributions are set, track your account balance and expenses throughout the year. You’ll likely receive a debit card to make payments directly from your FSA.

If certain expenses can’t be paid with the card, you can submit claims for reimbursement, so be sure to keep your receipts. (And even if you don’t need to submit a reimbursement claim, you should keep all healthcare-related receipts in case you need to submit substantiation.) Unsure of where to monitor your FSA balance? Check with your HR team. Finally, familiarize yourself with eligible expenses to maximize savings.^{Disclosure 4}

Estimating expenses

When planning your FSA contribution for the year, it’s important to estimate your expenses as accurately as possible so you have enough money set aside, but not too much. Some questions you may want to answer to help estimate accurately include:

• How many doctor appointments do I anticipate having this year? Include annual wellness exams and potential specialist visits.
• What is my copay for these visits? Consider your primary care physician, dentist, optometrist, orthodontist, OB-GYN, etc.
• Will I be seeing a specialist on a recurring basis, and if so, what are the copay amounts? Consider physical therapy, chiropractic care, mental healthcare, etc.
• What recurring prescriptions do I anticipate, and what are the related costs? Think about medications, prescription glasses, contact lenses, etc.
• What approved healthcare-related items will I need? See a full list of approved items here

Exploring your FSA options

Your healthcare needs are unique, and so are the FSAs that can help you manage them. Your employer may offer several types of FSAs that allow you to save on different expenses and help you make the most of your pretax savings.

Healthcare FSA: This is the most widely available option. It helps cover out-of-pocket medical, dental, and vision expenses for you, your spouse, and your dependents. The IRS sets contribution limits annually. If you’re married, both you and your spouse can have an FSA and contribute the maximum amount—but you can’t both be reimbursed for the same expenses.

Dependent care FSA: This FSA helps working parents and caregivers cover daycare, preschool, after-school programs, and elder care expenses. They can be a great way for families to reduce expenses. You can contribute up to $5,000 per household each year (or $2,500 if married and filing taxes separately).^{Disclosure 5} Dependent care FSAs are meant to be used for dependents who live with you the majority of the time. Changes to your contribution amount are only allowed after certain life events, including changes in marital status, the number of dependents in your home, and employment status.^{Disclosure 6}

Limited purpose FSA: If you’re enrolled in a high-deductible health plan (HDHP) and contribute to a health savings account (HSA), a limited purpose FSA can be a valuable companion. Limited purpose FSAs can be used for dental and vision expenses, freeing up your HSA to cover other medical costs or allowing you to save funds for the long term.

FSAs vs. HSAs: Which one is right for you?

FSAs offer great flexibility when it comes to covering a wide range of healthcare expenses. However, if you’re enrolled in a high-deductible health plan, you may have access to an HSA. So, what’s the difference between an FSA and HSA?

Both FSAs and HSAs allow you to contribute money from your paycheck without paying federal income tax, Social Security, or Medicare taxes on those dollars. Additionally, both accounts allow tax-free withdrawals with qualified medical expenses.

The main advantage of an HSA is that it never expires. Unused funds roll over each year and can even be invested to grow tax-free. This is a great way to boost long-term savings and prepare for healthcare expenses in retirement.

Whether you choose an FSA or an HSA, both offer valuable ways to save on healthcare expenses while reducing taxable income. FSAs are great for short-term savings, while HSAs are ideal for those with high-deductible plans looking to invest and grow their savings in the future. By selecting the option that best suits your needs, you can make smarter decisions about your healthcare spending.