It’s time to use it or lose it for many folks with flexible spending accounts, the tax-advantaged vehicles that help you pay for medical expenses.
Money in FSAs generally must be used within your health insurance plan year.
Employers are allowed — but not required — to offer one of two extensions of sorts, according to the federal government. But both are limited. Employers can:
- Provide a “grace period” of up to 2½ extra months to use the money in your FSA.
- Allow you to carry over up to $660 per year for use in the following year.
Healthcare.gov explains:
“At the end of the year or grace period, you lose any money left over in your FSA. Don’t put more money in your FSA than you think you’ll spend within a year on things like copayments, coinsurance, drugs, and other allowed health care costs.”
What is a flexible spending account?
An FSA, generally offered through employers, is a type of tax-advantaged account that enables you to pay for eligible out-of-pocket health care costs with pre-tax earnings. That’s because you don’t pay taxes on the money you put into an FSA.
For the tax year 2025, you can have up to $3,300 of your earnings placed in an FSA, according to the Internal Revenue Service. This contribution works similarly to how income is withheld from your paycheck to be invested in an employer-sponsored 401(k) account, for example.
Costs that can be paid out of an FSA include:
- Copayments
- Deductibles
- Prescription medications
- Over-the-counter medications with a doctor’s prescription (except for OTC insulin)
- Medical equipment like crutches
- Supplies like bandages
- Diagnostic devices like blood sugar test kits
FSA vs. HSA
An FSA is not to be confused with a health savings account, or HSA. Both enable you to effectively pay for eligible health care expenses tax-free, but HSAs have a few other big benefits that FSAs lack.
For example, money in an HSA can be put in a savings or investment account, making HSAs similar to tax-sheltered retirement accounts like IRAs or 401(k)s.
Learn more about the advantages of HSAs in “6 Reasons This Is the Best Type of Retirement Account out There.”
However, to qualify for an HSA, your health insurance deductible must be relatively high. Such rules do not apply to an FSA.
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