What is a Flexible Spending Account (FSA)?

When medical expenses arise, you may not have to pay out of your pocket. Instead, your employer may offer a flexible spending account or FSA, which is a health savings account that helps cover medical-related expenses.

What Is It?

An FSA is a tax-advantaged savings account specifically for qualified medical expenses. This means contributions put into this savings account reduces your taxable income. So, if your salary was $50,000 a year and you contributed $2,000 toward your FSA, then the taxable income is $48,000. Contributions are portions of your check that you delegate to be transferred automatically every time you get paid into the savings account.

How It Works

Each week you deposit tax-free funds into your FSA. These contributions are set aside until you have a qualified medical expense and can be used for yourself, your spouse, or a dependent. Then you can use the funds to pay for medical and dental expenses. Expenses include:

  • Deductibles and copayments (not insurance premiums)
  • Prescriptions and over-the-counter medications
  • Medical equipment like crutches, bandages, and more

If you don’t use the funds properly, you can be penalized. A list of qualified expenses can be found on the IRS website.


When making contributions, make sure you don’t go over the limit set by the IRS. If you go over, you could incur a fee. To find the current limits, visit the U.S. Department of the Treasury’s website.

You also need to plan accordingly when making contributions. These funds disappear at the end of each calendar year. So, if you have money still left in the account in December, use them!

Sometimes, employers elect to extend using the FSA funds. One option is a grace period which extends the use of funds by a couple of months, or the other option is to carry over a certain amount to be used for the following year. Each of these options allows you to keep using your funds for qualified medical expenses. The last thing you want to do is lose out on money!

If you are looking for a way to pay for medical expenses, see if your employer offers this health savings account option! It could be a great fit for your lifestyle.