FSAs and Your Tax Return

What is a Flexible Spending Arrangement (FSA)? 

A Flexible Spending Arrangement (FSA) is a tax-free, "use it or lose it" savings account for medical and certain nonmedical expenses. 

FSAs are set up by an employer in a “cafeteria” plan, where the employer provides certain benefits on a pretax basis. The money in the FSA account can be used to pay qualifying expenses for the taxpayer, the taxpayer’s spouse, and the taxpayer’s dependents. 

What are the tax benefits of an FSA? 

Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the employee's spouse had a plan through his or her employer, the spouse could also contribute up to $3,200 to that plan. In this situation, the couple could jointly contribute up to $6,400 for their household.  If the plan allows, the employer could also have contributed to an employee's FSA. 

The taxpayer may withdraw the money tax-free if it’s used to pay qualifying expenses.  

What types of FSAs are available? 

There are several types of FSAs: 

• Health Care FSAs allow you to set aside pretax dollars for medical expenses. You and your employer may both contribute to the FSA. 

• Limited Expense Health Care FSAs cover only dental and vision medical expenses. People who have a limited FSA already have an HSA to help cover other medical expenses. 

• Dependent Care FSAs may be offered by your employer to pay dependent care costs. You and your employer may contribute to the FSA.  

For health and limited health FSAs, you don’t have to file anything with your return. You must file Form 2441 with your return if you have a dependent care FSA. 

Who is eligible for an FSA? 

Generally, to be eligible for an FSA, you must be an employee of an employer who offers an FSA. (If you are self-employed, check out Medical Savings Accounts instead.) 

You could be eligible for one or more FSAs, which allow varying amounts you can contribute. You can’t move money from one FSA to another, and if you don’t use the balance, you’ll usually lose what’s left at the end of the plan year.

Can I get a health FSA even if I don’t have health insurance?  

Yes. Unlike an HSA, you’re not required to have health insurance to be eligible for a health FSA. 

What if I have an HSA and want an FSA? 

You’re eligible for a limited health FSA, which covers only dental and vision expenses. You may contribute to both an HSA and a limited FSA to maximize tax deductions and savings. You can contribute the maximum amounts for both the HSA and a limited health FSA. 

What are the requirements for having a dependent care FSA?  

You or your spouse must work or be looking for work to make the dependent care costs eligible. The child for whom the expenses were paid must be under 13 years old. If the child turns 13 during the plan year, any childcare expenses after the birthday are ineligible. If, however, you have a child or other dependent relative over age 13 who is mentally or physically incapable of caring for themselves, your dependent care FSA can be used to pay for expenses. See Who Can You Claim as a Dependent? 

The maximum annual contribution limit to a dependent care FSA did not change for 2024. It remained at $5,000 per household or $2,500 if married and filing separately. 

How much can I contribute to my FSA in a year? 

FSAs are set up by “plan years.” This means that before the new plan year starts, you choose how much you’d like to contribute for that plan year. Your employer will then deduct a set amount per pay period. 

The contribution limit is $3,200 for 2024, a $150 increase to the contribution limit for these accounts. There is no limit on the amount of money your employer can contribute to the arrangements. 

How do I use my FSA to pay for expenses? 

Withdrawing from your FSA can be as simple as using a debit card, but you might have to submit paperwork and wait for reimbursement. Either way, it’s a good habit to keep receipts and any paperwork from doctors, specialists, or for any medical supplies. 

When you need to withdraw money from your Flexible Spending Arrangement, contact your plan administrator for help with getting reimbursed. 

What happens if I have an FSA balance at the end of the plan year? 

FSAs are “use it or lose it” accounts, meaning that any remaining balance at the end of the plan year is forfeited. Any unused balance is not refunded to you. 

That said, your FSA plan might offer one of two ways to help you use up any remaining funds. The first option is a grace period of two-and-a-half months after the end of the plan year, giving you extra time to use up the funds. Some plans allow you to carry over up to $640 to the next year. None of the plans allow both options, however, and neither is required. Check with your plan administrator for details. 

Feel good about filing your taxes with FSA savings 

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