What Is a Flexible Spending Account (FSA)?

A flexible spending account (FSA) is an employer-sponsored account that lets you set aside pre-tax money to pay for qualified healthcare or dependent care costs. Because the money comes out of your paycheck before taxes, an FSA lowers your taxable income and helps you keep more of what you earn. 

For 2026, you can put up to $3,400 into a healthcare FSA. If you use it well, an FSA is one of the simplest ways to save on out-of-pocket medical bills you already know are coming.

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Key Takeaways

• An FSA lets you pay for qualified healthcare and dependent care expenses with pre-tax dollars, which lowers your taxable income and can save you money on costs you were going to pay anyway.

• For 2026, the healthcare FSA limit is $3,400 per employee and the dependent care FSA limit is $7,500 per household, with a carryover of up to $680 for healthcare FSAs.

• FSAs follow a use-it-or-lose-it rule, so estimate carefully; you may forfeit unused funds unless your employer offers a carryover or a grace period.

Summary generated by AI, verified by MoneyLion editors

How a Flexible Spending Account (FSA) Works

An FSA is offered through your employer, and you decide how much to contribute during open enrollment. That amount is deducted from your paychecks in equal chunks over the plan year.

Here's the part people love: with a healthcare FSA, your full annual election is available on the first day of the plan year, even though you haven't finished contributing yet. So if you elect $2,000, you can spend all $2,000 in January and pay it back through payroll over the rest of the year.

Because contributions are pre-tax, you could avoid federal income tax on that money. 

Types of FSAs

There are three main types of FSAs, and each covers different expenses:

• Healthcare FSA: Covers a wide range of medical, dental and vision costs for you, your spouse and your dependents.

• Limited purpose FSA: Covers only dental and vision expenses. This one is designed to work alongside a health savings account (HSA).

• Dependent care FSA: Covers eligible child care or adult day care costs so you can work.

2026 FSA Contribution Limits

The IRS updates FSA limits each year to keep pace with inflation. According to Revenue Procedure 2025-32, here are the 2026 numbers:

• Healthcare FSA: $3,400 per employee, up from $3,300 in 2025.

• Limited purpose FSA: $3,400, the same as the healthcare FSA.

• Dependent care FSA: $7,500 per household, or $3,750 if married and filing separately.

• Carryover limit: Up to $680 for healthcare FSAs.

If both you and your spouse are offered a healthcare FSA at work, you can each contribute up to $3,400 for a combined household total of $6,800.

What You Can Buy With an FSA

A healthcare FSA covers more than you might expect. Eligible expenses include:

• Prescription copays and deductibles.

• Dental and vision care, including glasses and contacts.

• Over-the-counter medications, which no longer require a prescription.

• Menstrual care products.

• First-aid supplies, sunscreen and heating pads.

Keep in mind that expenses must be medically necessary and not reimbursed by another plan. When in doubt, check your plan's eligible-expense list or ask your FSA provider.

The Use-It-or-Lose-It Rule

FSAs come with one big catch. If you don't spend your funds by the deadline, you could lose the leftover money. To soften this, your employer may offer one of two options:

• Carryover: Roll over up to $680 of unused healthcare FSA money into the next plan year.

• Grace period: Get an extra two and a half months after the plan year ends to spend remaining funds. For a plan year ending Dec. 31, that runs through March 15.

Employers can offer a carryover or a grace period, but not both, and some offer neither. Dependent care FSA funds do not carry over, so plan those especially carefully. Always check your plan documents so you know your exact deadline.

Flexible Spending Account (FSA) vs. Health Savings Account (HSA)

FSAs and HSAs both let you pay for healthcare with pre-tax dollars, but they work differently. An HSA requires a high-deductible health plan, the money is yours to keep even if you change jobs and unused funds roll over every year with no limit. An FSA has no health plan requirement, but it's tied to your employer and follows the use-it-or-lose-it rule. You generally can't contribute to a healthcare FSA and an HSA at the same time.

The Bottom Line

An FSA is a straightforward way to stretch your healthcare dollars, as long as you estimate your expenses and spend before your deadline. Check your plan's rules, know your limit and put every pre-tax dollar to work.

FAQs

Do FSA funds roll over every year?

Not automatically. Roll over is only possible if your employer offers a carryover, which is capped at $680 for healthcare FSAs in 2026. Otherwise you may forfeit unused funds.

What happens to my FSA if I leave my job?

Healthcare FSA funds are generally forfeited when your employment ends, unless you elect COBRA continuation. FSAs are not portable, so they don't transfer to a new employer.

Can I use my FSA for my spouse or kids?

Yes. A healthcare FSA can cover eligible expenses for you, your spouse and any dependents you claim on your tax return.

How much should I contribute?

Contribute what you're confident you'll spend. Start by adding up recurring costs like prescriptions, copays and contacts, then factor in your plan's carryover or grace period.

Key Terms

Flexible spending account (FSA): An employer-sponsored account that lets you pay for qualified healthcare or dependent care costs with pre-tax dollars.

Limited purpose FSA: A type of FSA that covers only dental and vision expenses and can be paired with a health savings account.

Dependent care FSA: An FSA that covers eligible child care or adult day care costs so you can work. The 2026 limit is $7,500 per household.

Carryover: An option that lets you roll unused healthcare FSA funds into the next plan year, up to $680 for 2026.

Grace period: An optional two-and-a-half-month window after the plan year ends to spend remaining FSA funds.

Use-it-or-lose-it rule: The IRS rule that forfeits unused FSA funds at the end of the plan year unless a carryover or grace period applies.

Sources

• Internal Revenue Service: Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans

• Internal Revenue Service: Publication 502, Medical and Dental Expenses

• Internal Revenue Service: Publication 503, Child and Dependent Care Expenses

• Internal Revenue Service: IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill