Learn About FSA Eligible Expenses and Rules

Understanding FSA Accounts and How They Work

A Flexible Spending Account (FSA) is a special savings arrangement offered by many employers that lets workers set aside money before taxes are taken out. This money can be used to pay for healthcare costs that aren't covered by insurance. The key feature that makes FSAs different from regular savings is the tax advantage: money you put into an FSA isn't subject to federal income tax or Social Security taxes, which means you keep more of your paycheck.

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FSAs are tied to your job. When you enroll during your employer's open enrollment period, you decide how much to contribute for the year. That amount is taken out of your paycheck in equal installments throughout the year. The money sits in an account that you can draw from whenever you have a covered healthcare expense. For 2024, workers can contribute up to $3,300 to a healthcare FSA, though this amount may change in future years.

There are actually different types of FSAs. The most common is the healthcare FSA, sometimes called a medical FSA, which covers doctor visits, prescriptions, and other medical expenses. Some employers also offer dependent care FSAs, which help pay for childcare or adult dependent care. These have different rules and limits. A dependent care FSA has a lower annual limit of $5,000 per household for 2024.

One important rule to know from the start: FSAs follow a "use it or lose it" principle. If you don't spend the money in your FSA by the end of the plan year, you generally lose it. However, your employer may allow a grace period of up to 2.5 months into the next year, or they may permit you to carry over up to $640 of unused funds into the next year (this amount changes annually). Not all employers offer these options, so understanding your specific plan matters.

Practical Takeaway: Before enrolling in an FSA, estimate how much healthcare spending you expect during the year. If you typically spend $1,500 on copays, medications, and medical supplies, contributing that amount to an FSA could save you several hundred dollars in taxes. However, don't contribute more than you can realistically spend, since unused funds are forfeited.

Common FSA Eligible Medical Expenses

FSA funds can be used for a wide range of healthcare costs, many of which people don't realize are covered. The rules are fairly broad and include most expenses related to treatment, diagnosis, or prevention of disease. According to IRS guidance, over 200 different types of medical expenses are FSA-eligible. Understanding what qualifies can help you make the most of your account.

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Doctor visits and preventive care are among the most straightforward eligible expenses. This includes appointments with physicians, specialists, dentists, and optometrists. Preventive services like annual physical exams, cancer screenings, and vaccinations are covered. If you have a chronic condition like diabetes or heart disease, regular checkups and monitoring related to that condition are covered. Mental health and psychiatric care, including therapy sessions and counseling, are also eligible uses of FSA funds.

Prescription medications are covered without restriction in most FSA plans. Over-the-counter medications like pain relievers, allergy medicine, and cold medicine are also eligible—but there's a catch. Since 2020, you must have a prescription from a doctor for over-the-counter items to use FSA funds, even if the medicine doesn't legally require a prescription at the pharmacy. This means you can use FSA money for over-the-counter allergy medicine if your doctor prescribes it, but not if you just buy it on your own.

Many people don't realize that dental and vision care expenses count toward FSA spending. Dental work such as cleanings, fillings, root canals, crowns, and braces are eligible. Eyeglasses, contact lenses, and eye exams are covered. Hearing aids and hearing tests are also FSA-eligible. Medical equipment and supplies make up another large category: items like blood pressure monitors, glucose meters for diabetes testing, crutches, wheelchairs, and heating pads all count. Even costs for transportation to medical appointments and lodging during medical treatment can be covered in some situations.

Certain health-related expenses that go beyond traditional medical care are also covered. For example, if a doctor recommends swimming as physical therapy, the membership fee for access to a pool counts as an FSA expense. Health insurance copayments and deductibles can be paid with FSA funds, though insurance premiums themselves cannot. Fertility treatments and related procedures are eligible, as are costs for birth control prescribed by a doctor.

Practical Takeaway: Keep a running list of medical expenses you expect during the year, including prescriptions, dental work, vision care, and doctor copays. This gives you a realistic number to contribute to your FSA. Remember that you'll need a prescription for any over-the-counter medications, so ask your doctor for one if you plan to use FSA funds for these items.

Expenses That Are NOT FSA Covered

Understanding what is not covered by an FSA is just as important as knowing what is covered. There are clear categories of expenses that the IRS and your plan rules exclude, and using FSA funds for non-eligible items could result in owing taxes on that money. Being aware of these restrictions prevents mistakes and helps you plan your healthcare spending properly.

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General wellness and cosmetic expenses are not covered. If you purchase vitamins, supplements, or herbal remedies without a doctor's prescription, these are not FSA-eligible. This is true even if you believe they support your health. Cosmetic procedures and products, such as Botox injections, hair removal treatments, skin care products, or teeth whitening solely for appearance reasons, are not covered. However, if a dermatologist prescribes a cream to treat a medical skin condition like eczema or psoriasis, that would be covered.

Gym memberships and general fitness activities are not eligible, even though exercise is important for health. You cannot use FSA funds for a yoga class or personal trainer unless it's specifically prescribed by a doctor as medically necessary physical therapy. Similarly, weight loss programs and diet supplements are not covered unless they are medically necessary for a specific condition and prescribed by a doctor. Cosmetic dentistry, such as teeth whitening or veneers done purely for appearance, is not covered, though medically necessary dental work is.

Insurance premiums themselves cannot be paid with FSA funds in most situations. You cannot use FSA money to pay your health insurance premium, auto insurance, or life insurance. However, you can use FSA funds to pay for copayments, coinsurance, and deductibles—these are out-of-pocket costs that come after insurance. Long-term care insurance premiums are also not FSA-eligible, with limited exceptions.

Travel and accommodation costs are generally not covered, even if you're traveling for medical treatment. However, there's an exception: if your doctor recommends that a family member accompany you to medical treatment due to your medical condition, the lodging and transportation for that family member may be covered. Regular travel expenses or vacation accommodations do not qualify. Childcare costs that are not specifically for dependent care FSA accounts are also not covered by healthcare FSAs, even though dependent care FSAs exist for this purpose.

Other excluded categories include cosmetic surgery not medically necessary, care received outside the United States in most cases, marijuana (even in states where it's legal), and services that are purely educational. For example, a class on nutrition or stress management is not covered just because it relates to health, but if a doctor prescribes a specific program as treatment for a medical condition, it might be covered.

Practical Takeaway: When in doubt about whether an expense is covered, check with your plan administrator or review your plan documents before spending FSA funds. Some expenses exist in a gray area, and your specific plan may have additional restrictions beyond IRS rules. It's better to ask first than to spend the money and discover later that the expense wasn't covered.

FSA Rules You Must Follow

FSAs come with specific rules that govern how the account works and when you can use the funds. These aren't optional guidelines—they're requirements set by the IRS and your employer's plan. Understanding and following these rules is essential to avoiding penalties and making sure you can access your money when you need it.

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The "use it or lose it" rule is the most famous FSA restriction. Any money remaining in your FSA at the end of the plan year is forfeited. You don't