Flexible Spending Arrangement (FSA)
Updated for plan year 2026
In plain terms
A Flexible Spending Arrangement (FSA) is an employer-established account that lets you set aside pre-tax money from your paycheck for qualified medical expenses, lowering your taxable income. Unlike an HSA, it doesn't require a high-deductible plan, but it belongs to your employer's benefit plan rather than to you. FSAs generally follow a use-it-or-lose-it rule: unspent funds are forfeited at year end, though some plans allow a limited carryover or short grace period. The IRS sets the annual contribution limit, adjusted each year.
A plain example
During open enrollment you elect to put $1,500 into a health FSA for the year. The full amount is available on day one, so you can pay for braces in January even though contributions come out of later paychecks. If you've only used $1,200 by year end and your plan allows no carryover, the remaining $300 is forfeited.
Why it matters
An FSA cuts your tax bill on health costs you already expect, like copays, prescriptions, and dental work, without needing a high-deductible plan. The catch is planning: because unspent money can vanish at year end, the savings only work if you estimate your expenses reasonably and spend the balance in time.
A common point of confusion
People mix up FSAs and HSAs. FSA money is generally use-it-or-lose-it and tied to your job, so it doesn't follow you if you leave; HSA money is yours permanently and rolls over. You also can't usually contribute to both a general health FSA and an HSA at the same time.