Workplace Benefits
Saving money for the future is a good way to help protect your financial health and stay prepared. When it comes to planning for medical costs, there are dedicated accounts available to employees that can help offset some of the costs of healthcare, like flexible spending accounts (FSA).
An FSA is an employer-sponsored savings account you can use to help make out-of-pocket healthcare expenses more manageable. FSAs are tax-advantaged accounts, which means you can make pre-tax contributions to the account and spend the money tax-free.
Learn more about FSAs and how they can help you save and pay for qualified expenses.
A flexible spending account — or flexible spending arrangement — lets account holders deduct pre-tax money directly from their paychecks to save for qualified healthcare expenses.1 FSA funds can be used to pay for things like deductibles, co-pays, and doctor visits for you, your spouse, and qualifying dependents. Employers can also contribute to an employee’s FSA but they aren’t required to do so.
There are typically three ways to access your FSA money. You can use a smart debit card connected to your account, pay providers directly through your online portal, or submit receipts for reimbursement. Check with your employer to find out which options they offer.
FSAs can be used to cover the costs of various medical, dental, and vision expenses — as long as they’re qualified.
Here are some examples of qualified, out-of-pocket expenses you can use an FSA for:
For a complete list of eligible expenses, review Internal Revenue Service (IRS) Publication 502.
To be eligible for an FSA, you need to work at a company that offers FSAs as part of their employee benefits. Generally, employees don’t need to be enrolled in a health insurance plan to open an FSA.
If you have a health savings account (HSA), you may not be eligible for a general healthcare FSA, because they're used to pay for the same types of medical expenses. However, there are specialty FSAs — i.e., limited purpose FSA (LP-FSA) and dependent care FSA (DC-FSA) — that you can use in conjunction with an HSA.
Some employers may offer LP-FSAs and DC-FSAs. These types of accounts suit specific needs, while a healthcare FSA is a general-purpose account. Covered expenses, HSA compatibility, and plan details differ depending on the type of FSA you have.
A healthcare FSA is a standard FSA that can be used to help cover medical, dental, and vision expenses.
For 2023, contribution limits for a healthcare FSA are $3,050, with a maximum of $5,000 per household or $2,500 for married couples filing separately.3
Healthcare FSAs can’t be used in conjunction with an HSA or high deductible health plan (HDHP).
A limited purpose FSA is similar to a standard FSA, except it can only be used to help cover qualified dental and vision expenses — medical expenses generally aren’t covered.
For 2023, contribution limits for a LP-FSA is $3,050, with a maximum of $5,000 per household or $2,500 for married couples filing separately.3
LP-FSAs can be used in conjunction with an HSA and HDHP. You might be able to maximize your savings when you pair a LP-FSA with an HSA.4 For example, it can promote more tax-free account growth and allow you to save the full annual maximum in your HSA.
A dependent care FSA is used to pay for qualified medical expenses for dependents. A dependent is defined as children under age 13 and adults who are physically or mentally unable to take care of themselves.5 Eligible expenses could include things like child care, after-school programs, and senior daycare.
For 2023, the contribution limit for a DC-FSA is $5,000 per household or $2,500 for married couples filing separately.3
DC-FSAs can be used in conjunction with an HSA and HDHP. Contributing to both accounts can help lower your taxable income.6
Having an FSA comes with multiple advantages such as saving on taxes. But FSAs can also have disadvantages, like “use-it-or-lose-it” restrictions and lower contribution limits.
Consider the following benefits and limitations of an FSA:
Both an FSA and an HSA can help you pay for medical care while saving on taxes, but there are some key differences.
Here are a few ways FSAs and HSAs differ:
If your employer offers an FSA, you may want to consider opening one for its potential health and financial benefits. But first, make sure it's the right choice for you and your situation.
Think about your finances and priorities to decide if you’ll reasonably be able to contribute enough to an FSA to make it worthwhile. If you’re often paying out of pocket for medical expenses, an FSA can save you money in the short and long term.
Nothing in these materials is intended to be, nor should be construed as, advice or a recommendation for a particular situation or individual. Participants should consult with their own advisors for such advice. Federal and state laws and regulations are subject to change.
1“Keep more of your money with the Flexible Spending Accounts best suited for you” FSAFEDS
2 “HR Fast Facts: Which Employees Are Eligible to Enroll in an FSA plan?” Workest, 2022
3 “2023 FSA and Commuter Limits” Employee Benefits Corporation, 2023
4 ”Level up your health savings: Pairing LPFSA with HSA” HealthEquity, 2023
5 “Dependent Care FSAs: What Are They and How Do They Work?” Paychex, 2022
6 “How Does a Dependent Care FSA Work?” GoodRX, 2022
7 “Health Savings Accounts and Other Tax-Favored Health Plans” IRS, 2022
8 “IRS provides tax inflation adjustments for tax year 2023” IRS, 2022