What is an FSA? Flexible spending accounts, explained

What an FSA is

HealthCare.gov describes a flexible spending account as an arrangement through your employer that lets you pay for many out-of-pocket medical expenses with tax-free dollars. Allowed expenses include insurance copayments and deductibles, qualified prescription drugs, insulin and medical devices.

You choose a yearly amount when you sign up, and it comes out of your pay before income tax. The IRS calls an FSA part of a cafeteria plan, which gives participants the chance to receive qualified benefits on a pre-tax basis.

The 2026 limit and the deadline

For 2026, the limit on what you can put in a health FSA through salary reductions is $3,400 (IRS Rev. Proc. 2025-32). If your plan lets unused money carry over, the most it can carry over is $680.

An FSA is a plan year benefit, and plans have rules about unused money. Read your plan's rules before you pick an amount.

FSAs and couples

Each person's FSA belongs to that person's employer plan, so you each choose your own. Costs for the household can often be paid from either one, but check each plan's rules on who counts.

There is also a dependent care FSA, which the IRS lists as another pre-tax benefit in a cafeteria plan. It is separate from the health one.

A worked example: $1,300 into a health FSA

• You choose $1,300 for the year, paid every two weeks.
• Per paycheck: $1,300 / 26 = $50.
• Income tax saved at a 12% marginal rate: $1,300 x 12% = $156 for the year.
• You spend $400 on prescriptions and $450 on copays and a dental deductible: $850 so far.
• $1,300 - $850 = $450 is still to spend by your plan's deadline, within the $3,400 limit for 2026.