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A Flexible Spending Account (FSA) is a tax-advantaged account that allows employees to set aside pre-tax money to pay for eligible healthcare expenses.
Employees choose an annual contribution amount during open enrollment, and those funds can be used throughout the plan year for qualifying medical costs.
FSA funds can be used for many healthcare-related expenses that are not fully covered by insurance. Common eligible expenses include:
Eligibility rules are defined by the IRS and may change periodically.
Most FSAs follow the “use-it-or-lose-it” rule, meaning unused funds at the end of the plan year may be forfeited.
However, some plans allow limited flexibility, such as:
Employees should review their plan rules to understand how unused funds are handled.
An FSA rollover allows employees to carry over a limited portion of unused FSA funds into the following plan year.
The maximum rollover amount is set by the IRS and may be adjusted periodically. Not all plans offer rollover provisions, so employees should check their plan details.
The IRS sets annual contribution limits for healthcare FSAs. Employees may elect to contribute up to the maximum amount established by the IRS for each plan year.
Employers should monitor IRS updates each year to ensure their plan contribution limits remain compliant.
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