How Flexible Spending Accounts Work

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Contributor, Benzinga
February 8, 2022

Flexible spending accounts (FSAs) are a tool you can use to pay for medical expenses and save on taxes each year. It’s a good option for those in need of financial help for medical expenses and those who have chronic health conditions that require regular treatment. An FSA can be beneficial to many different people, but be sure you know what you’re getting into before opening an account because there can be some risk involved. 

What is a Flexible Spending Account?

You can use a flexible spending account (FSA) to make co-payments, some prescription drugs, deductibles and other out-of-pocket healthcare costs. Using a flexible spending account can reduce your taxes — you don’t need to pay taxes on money that you put into the account. Employers will sometimes volunteer to make contributions to employee FSAs, but they are not required to do so. Flexible spending accounts are sometimes referred to as flexible spending arrangements.

While your employer is not required to contribute to your FSA, it must set up the account and maintain it. If you open an FSA, you immediately get access to all the money in the account on the first day of each year. While this can be an extra expense on the side of your employer, an FSA can ultimately be quite beneficial to both you, the employee, and the employer if the plan runs well and there is good participation overall.

Expenses an FSA Can Cover

The whole purpose of an FSA is to help you pay for select healthcare-related expenses that may not be covered by your employer’s health insurance plan. FSAs can be used to pay for a variety of expenses for you, your spouse and your dependents. These medical expenses can include dental expenses even though dental care costs are not a required benefit under the Affordable Care Act (ACA). It’s important to note that you cannot use an FSA to pay for your insurance premiums. 

The following are some of the expenses that your FSA can cover: 

Deductibles: Your plan’s deductible is the amount of money you pay before your health insurance plan kicks in and begins to pay your medical care costs. You typically need to meet your deductible before you can begin using your health insurance benefits. For example, if you have a $1,000 deductible, you must contribute $1,000 toward your medical expenses before your insurance covers anything. Your FSA can be used to pay the deductible so you don’t have to pay it out-of-pocket.  

Co-payments: Co-payments are a fixed amount of money you pay for a healthcare service that is covered by your insurance. Co-payments are made after you pay the deductible, and the amount varies depending on the service you’re receiving. For example, you might have a $50 co-payment for doctor’s visits, so you must pay $50 every time you visit the doctor after you’ve met your deductible, while your insurance pays the remainder. Your health savings accounts’ funds can be used to make your co-pays. 

Prescription medications: Prescriptions can be paid for by an FSA. However, the expense can only be paid if the medication was prescribed by a doctor. This means that you cannot use your FSA for over-the-counter medications. 

Medical equipment: You can cover the expenses of any type of medical equipment with an FSA, no matter if the equipment is installed in your home or your car. Equipment that doesn’t require installation can also be paid for through your FSA. Other medical equipment that can be covered includes contact lenses, oxygen machines, crutches and wheelchairs. 

Capital expenses: The capital expenses that can be covered by a FSA typically pertain to improvements made to your home with the purpose of medical care or improved accessibility for you, your spouse or your dependent. Examples of capital expenses that qualify for coverage under your FSA might be widening doorways or hallways, modifiying stairways, installing porch lifts, lowering or modifying kitchen cabinets and counters and installing railings in your bathroom.  

Dental treatments: Expenses pertaining to alleviating and preventing dental disease can be covered by your FSA. This can include treatments like teeth cleaning, sealant application, fluoride treatments, braces, X-rays, fillings and extractions. It does not include purely cosmetic procedures like teeth whitening. 

These are just a few examples of how you can use the funds in your FSA. You can view a complete list of treatments and services that you can use your FSA funds for at

Who Needs an FSA?

While an FSA may seem most beneficial to those with major health costs, it can be useful for people with all different levels of healthcare-related needs. Whether you need an FSA depends on your health spending and your own circumstances. The following are a few examples of people who may want to consider an FSA account. 

Anyone concerned about health costs: Whether you have a high level of health costs now or know you may have medical expenses in the upcoming year that you need to pay, setting aside funds in an FSA can give you peace of mind.   

Those with employer contributions: Your employer is able to contribute to your FSA, but it is not required. If your employer is contributing, then it makes sense to take advantage of that. Not only will some of your out-of-pocket costs be covered by your employer’s contributions, it can also alleviate nervousness over the possibility of losing funds.  

Parents: An FSA is beneficial for parents and allows you to pay for medical expenses relating to your dependents, including your children. If you have children, an FSA makes it easier to pay for all the small medical expenses that come with having a child, which can add up in the child’s first few years of life. 

Those with chronic conditions: If you have a chronic condition, your healthcare expenses might be much higher than someone who does not suffer from a chronic condition. With an FSA, you’ll be able to save money on medical expenses by diverting a portion of your income to an account with tax benefits. 

FSA Limits

There are certain limits you must adhere to regarding your FSA. FSAs are limited to $2,850 in contributions per year per employer. If you are married, your spouse can also contribute up to $2,850 to your FSA per year. You typically need to use the funds in the FSA within the year they are deposited. However, your employer may allow for a grace period that can extend the period during which you can use your FSA funds up to 2.5 months past the year end. 

In addition, employers can also allow you to carry up to $570 into the following year. Your employer is not required to offer either of these options, but if they offer one, they cannot offer both. This means that your employer may offer you a 2.5-month grace period or a carry-over of up to $570, not both.

Compare Health Insurance

If you don’t have access to an FSA because your employer doesn’t offer this choice, you’ll want to be sure that you have a comprehensive health insurance plan that fully covers your medical needs. Benzinga offers insights and reviews on the following health insurance providers. Begin your research using the links below to find the right health insurance. 

  • securely through Blue Cross Blue Shield Health Insurance's website
    securely through Blue Cross Blue Shield Health Insurance's website
    Best For:
    Nationwide coverage
    Read Review
  • securely through Sidecar Health Access Plan's website
    securely through Sidecar Health Access Plan's website
    Best For:
    No enrollment period health insurance
    Read Review

    Plans referred to above are excepted benefit fixed indemnity insurance products marketed and administered by Sidecar Health Insurance Solutions, LLC and underwritten by Sirius America Insurance Company or United States Fire Insurance Company, depending on the state. As an excepted benefit plan, it does not provide comprehensive/major medical expenses coverage, minimum essential coverage, or essential health benefits. You cannot receive a subsidy (premium tax credit and/or cost-sharing reduction) under the ACA in connection with your purchase of such an excepted benefit fixed indemnity insurance plan. Also, the termination or loss of this policy does not entitle you to a special enrollment period to purchase a health benefit plan that qualifies as minimum essential coverage outside of an open enrollment period. Coverage and plan options may vary or may not be available in all states.

  • Best For:
    Access to Kaiser medical specialists
    Read Review
  • Best For:
    Same day coverage available
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Saving Money On Healthcare Expenses

If you, your spouse or your dependent suffers from a chronic medical condition that requires regular care, you may find that medical expenses begin to become unmanageable quickly. An FSA can help you save money on medical expenses and also pay less in taxes. It’s important to remember that you must use all of your FSA funds within a year unless your employer offers rollover options. An FSA may not be beneficial for anyone who does not require advanced medical care on a regular basis. 

Frequently Asked Questions


What is covered under a flexible spending account?


A variety of medical expenses qualify for coverage under a flexible spending account, including deductibles, co-payments, qualifying prescription medications, medical devices and equipment, capital expenses and dental treatments. The expenses covered by an FSA extend from you to your spouse and/or children if you have either.


Is it worth having a flexible spending account?


Whether a flexible spending account is worth it depends on you and your situation. You may feel you can’t afford to have anything else deducted from your paycheck if you have a chronic condition that requires ongoing medical expenses. If your medical bills are higher than average, an FSA allows you to pay for things you need tax-free without having to wait or save up for them. As long as you have somewhat predictable medical expenses, an FSA can be worth it because you’re saving on taxes.