Flexible Spending Account: 2026 Limits, Rules, and Benefits

A flexible spending account, also called a flexible spending arrangement or flexible spending plan, is an employer-sponsored benefit that lets you use pretax money for certain eligible expenses.

A health FSA can help pay for qualified out-of-pocket medical costs, while a dependent care FSA may help cover eligible care expenses that allow you and your spouse, when applicable, to work or look for work.

FSAs may reduce the income subject to certain taxes, but they require careful planning. The amount you contribute should be based on expenses you reasonably expect during the plan year.

What Is a Flexible Spending Account?

A flexible spending account is an employer-sponsored benefit that lets you set aside money from your paycheck before certain federal taxes are calculated. You can then use the funds to reimburse eligible expenses covered by the plan.

The IRS generally uses the term flexible spending arrangement, while employers and employees commonly call it a flexible spending account or FSA. “Flexible spending plan” is another informal phrase used for the same type of workplace benefit.

A health FSA is commonly used for eligible out-of-pocket medical, dental, and vision expenses. Depending on the employer’s benefit options, a separate dependent care FSA may be available for qualifying care expenses.

You cannot usually open an FSA independently. Your employer must offer the benefit, and you generally choose whether to participate during open enrollment or after an eligible life event. Employers are not required to offer FSAs.

The money is typically deducted from your pay throughout the plan year. Claims are then submitted according to the employer plan’s reimbursement process.

Types of Flexible Spending Accounts

The two main types discussed by employees are health FSAs and dependent care FSAs. They cover different expenses and follow different rules, so they should not be treated as one interchangeable account.

Health FSA

A health FSA reimburses eligible out-of-pocket medical, dental, and vision expenses for you and, when permitted, your spouse and dependents.

Common examples may include:

• Deductibles and copayments
• Prescription medications
• Certain over-the-counter healthcare products
• Dental treatment
• Vision exams, glasses, and contact lenses
• Eligible medical equipment and supplies

Health FSA money generally cannot be used for health insurance premiums. Eligibility depends on federal rules and the employer’s plan, so check the plan documents before assuming an expense qualifies. IRS Publication 969 explains the federal rules for health flexible spending arrangements.

Dependent Care FSA

A dependent care FSA helps reimburse eligible care expenses that allow you, and your spouse when applicable, to work or actively look for work.

Depending on the circumstances, eligible expenses may include:

• Daycare
• Preschool
• Before-school or after-school care
• Summer day camp
• Care for an adult dependent who cannot care for themselves

A dependent care FSA does not pay medical expenses. It is also separate from the federal Child and Dependent Care Credit, although the two may affect each other when you file your tax return. Eligible care generally must be provided so you can work or look for work.

For 2026, the dependent care assistance exclusion limit increased to $7,500, or $3,750 for married individuals filing separately. Your employer’s plan may allow a lower amount.

Health FSA vs. Dependent Care FSA

You may be offered one, both, or neither account through your employer. Enrolling in one type does not automatically enroll you in the other.

How Does an FSA Work?

An FSA is usually funded through payroll deductions during the employer’s plan year. You choose an annual contribution amount during enrollment, and the employer divides that amount across your remaining pay periods.

For example, if you elect to contribute $1,200 over 12 monthly paychecks, approximately $100 would be deducted from each paycheck before certain taxes are calculated.

Choose an Annual Contribution

Estimate the eligible expenses you reasonably expect during the plan year, then choose a contribution amount within the applicable limit.

Your election is generally difficult to change once the plan year begins unless you experience an event permitted by the plan, such as certain changes in family or employment circumstances. Review your employer’s plan documents for the specific election-change rules.

Contributions Come From Your Paycheck

Your elected amount is normally deducted from your paycheck throughout the year. An employer may also contribute, but it is not required to do so.

Pay an Eligible Expense

When you have a qualifying expense, you may:

• Pay with an FSA debit card, when the plan provides one
• Pay out of pocket and submit a reimbursement claim
• Submit receipts or other documentation requested by the plan administrator

HealthCare.gov explains that employees may need to submit a claim with proof of the expense and confirmation that another health plan did not cover it. Your employer or plan administrator determines the exact process.

Receive Reimbursement

After the claim is approved, the plan reimburses the eligible amount according to its procedures.

For a health FSA, the full annual elected amount is generally available for eligible reimbursement from the start of the coverage period, even though payroll deductions continue throughout the year. This is sometimes called the uniform coverage rule. Dependent care FSAs work differently because reimbursement is generally limited to the amount already contributed and available in the account.

Keep Supporting Records

Save itemized receipts, explanations of benefits, prescriptions when required, and other documentation. A card transaction may still require later verification before the expense is fully approved.

2026 FSA Contribution Limits

The contribution limit depends on the type of FSA. Health FSAs and dependent care FSAs follow separate limits and tax rules.

2026 Health FSA Limit

For plan years beginning in 2026, the maximum voluntary employee salary reduction for a health FSA is $3,400.

This is the federal maximum an employee may elect through salary reductions. Your employer’s plan may set a lower limit.

If both spouses have access to separate health FSAs through their employers, each may generally elect up to the applicable individual limit under their own plan.

The IRS also states that a health FSA plan allowing unused funds to carry over may permit a maximum carryover of $680 into the following plan year. A carryover is not automatic. The employer must include it in the plan.

2026 Dependent Care FSA Limit

For 2026, up to $7,500 of dependent care assistance may generally be excluded from wages, or $3,750 for someone who is married and files separately.

Your employer’s plan may impose a lower limit, and your available exclusion may also be affected by earned income, filing status, and other tax rules.

Health FSA and Dependent Care FSA Limits Are Separate

Participating in a health FSA does not reduce the dependent care FSA limit, and participating in a dependent care FSA does not reduce the health FSA limit.

However, the money must be used for the correct type of eligible expense:

• Health FSA funds are for eligible healthcare expenses.
• Dependent care FSA funds are for eligible work-related care expenses.

Do not combine the balances or use one account to reimburse expenses covered by the other.

What Expenses Are FSA-Eligible?

Eligible expenses depend on the type of FSA and the terms of your employer’s plan. An expense should generally qualify under federal rules and also be permitted by the plan before reimbursement is approved.

Common Health FSA-Eligible Expenses

A health FSA may reimburse qualified out-of-pocket medical, dental, and vision expenses, including:

• Deductibles, copayments, and coinsurance
• Prescription medications
• Eligible over-the-counter medicines
• Menstrual care products
• Dental exams, fillings, and other qualifying treatment
• Eye exams, prescription glasses, and contact lenses
• Hearing aids
• Certain medical equipment and supplies
• Eligible mental health treatment
• Some transportation costs for qualifying medical care

IRS Publication 502 provides useful guidance on qualifying medical expenses, although reimbursement also depends on FSA rules and your employer’s plan.

Expenses That Are Commonly Not Eligible

A health FSA generally cannot reimburse:

• Health insurance premiums
• Cosmetic procedures that are not medically necessary
• General wellness expenses without a qualifying medical purpose
• Household or personal items used mainly for general health
• Expenses already reimbursed by insurance or another benefit plan
• Costs incurred outside the applicable coverage period

Some expenses may qualify only when they are connected to a diagnosed medical condition or supported by documentation from a healthcare professional.

Dependent Care FSA-Eligible Expenses

A dependent care FSA may cover qualifying care that allows you, and your spouse when applicable, to work or actively look for work.

Examples may include:

• Daycare
• Preschool
• Before-school and after-school care
• Summer day camp
• In-home care for an eligible dependent
• Care for an adult dependent who cannot care for themselves

It generally does not cover overnight camp, school tuition, tutoring, medical care, or payments to certain relatives who do not meet the tax requirements.

Check Before You Spend

Do not rely only on a product label, store category, or online eligibility badge. Your plan administrator may require an itemized receipt, explanation of benefits, prescription, or other documentation.

Before making a large or unusual purchase, confirm eligibility through your employer’s plan documents or FSA administrator. The IRS also notes that health FSA reimbursements for qualified medical expenses are generally not taxable.

Use-It-or-Lose-It, Carryover, and Grace Period Rules

Health FSAs generally follow a use-it-or-lose-it rule. This means money left in the account after the applicable plan deadlines may be forfeited.

However, an employer may design its health FSA to offer either a carryover or a grace period. The plan is not required to offer either option, and it generally cannot provide both for the same plan year.

Carryover

A carryover lets you move a limited amount of unused health FSA money into the next plan year.

For 2026, a plan that permits carryovers may allow up to $680 to carry into the following plan year. Your employer may set a lower amount or offer no carryover at all.

The carried-over amount generally does not reduce how much you may elect to contribute for the new plan year.

Grace Period

A grace period gives you additional time after the plan year ends to incur eligible healthcare expenses using money left from the previous year.

A health FSA grace period may last up to 2½ months. For a calendar-year plan ending December 31, that could extend the expense-incurrence period through March 15.

A grace period is different from a claims run-out period:

• Grace period: Extra time to incur new eligible expenses.
• Run-out period: Extra time to submit claims for expenses incurred during the eligible coverage period.

Your plan may have a run-out period even when it does not offer a grace period.

Your Employer Chooses the Plan Feature

An employer may offer:

• A permitted carryover
• A grace period
• Neither option

Do not assume unused funds will remain available simply because another employer’s plan offers that feature.

Check the Important Deadlines

Before the plan year ends, confirm:

• The final date for incurring eligible expenses
• The final date for submitting reimbursement claims
• Whether the plan offers a carryover or grace period
• The maximum permitted carryover under your plan
• What happens to unused funds after all deadlines pass

Review the summary plan description or contact the plan administrator if any deadline is unclear. IRS Publication 969 explains the general use-it-or-lose-it, carryover, and grace-period rules for health FSAs.

Benefits of a Flexible Spending Account

A flexible spending account may make certain healthcare or dependent care expenses easier to plan for through regular payroll deductions.

Pretax Contributions

FSA contributions are generally deducted from your paycheck before certain federal taxes are calculated. This may reduce the income subject to those taxes.

The exact tax effect depends on your pay, deductions, filing situation, and the type of FSA.

More Predictable Expense Planning

Regular payroll deductions can help spread expected costs across the plan year.

For example, instead of covering a $1,200 dental expense entirely from one paycheck, you may contribute toward expected healthcare costs gradually throughout the year.

Health FSA Funds May Be Available Early

With a health FSA, the full annual elected amount is generally available for eligible reimbursement at the beginning of the coverage period, even though payroll deductions continue throughout the year.

This may help when a large eligible expense occurs early in the plan year.

Support for Common Out-of-Pocket Costs

A health FSA may help cover eligible expenses that health insurance does not fully pay, such as copayments, deductibles, prescriptions, dental care, and vision costs.

A dependent care FSA may help organize eligible childcare or adult dependent care expenses needed for work.

Automatic Payroll Deductions

Contributions are normally taken directly from your paycheck, so you do not need to remember to transfer money manually each month.

This can make the contribution routine easier to maintain.

Employer Contributions May Be Available

Some employers contribute to employee FSAs, although they are not required to do so.

Review your benefit materials to see whether your employer contributes and whether any conditions apply.

An FSA is most useful when the tax savings and planning benefits outweigh the risk of contributing more than you can use for eligible expenses.

Drawbacks and Risks of a Flexible Spending Account

An FSA may offer tax advantages, but it is not the right choice for every employee. The main risks involve unused money, limited flexibility, and plan-specific rules.

You May Lose Unused Money

Health FSAs generally follow the use-it-or-lose-it rule. Any money left after the plan’s eligible spending and claim-submission deadlines may be forfeited.

A carryover or grace period can reduce this risk, but your employer is not required to offer either option.

Your Contribution Election May Be Difficult to Change

You generally choose your annual contribution during open enrollment.

Once the plan year begins, you may not be able to increase, reduce, or stop that election unless you experience a qualifying event allowed by the plan. This makes accurate expense estimates important.

Not Every Healthcare Expense Qualifies

An expense may seem health-related without meeting the rules for FSA reimbursement.

General wellness purchases, insurance premiums, unnecessary cosmetic procedures, and expenses already reimbursed elsewhere are commonly excluded. Some purchases may require additional medical documentation.

Claims May Require Documentation

Using an FSA debit card does not always complete the reimbursement process.

The administrator may request:

• An itemized receipt
• An explanation of benefits
• A prescription or letter of medical necessity
• Proof that insurance did not reimburse the expense

A transaction may be denied or reversed when the required records are not provided.

The Account Is Connected to Your Employer

An FSA is an employer-sponsored benefit rather than an independently owned account.

If you leave your job, access to the account may change or end, subject to the plan’s terms and any continuation rights that apply. Review the plan documents before leaving employment when you still have an unused balance.

Dependent Care Funds Are Reimbursed Differently

A health FSA generally makes the full annual election available at the beginning of the coverage period.

A dependent care FSA generally reimburses only up to the amount already contributed and available. This difference may affect cash flow when a large childcare bill is due early in the year.

A Higher Election Is Not Always Better

Contributing the maximum may produce a larger tax benefit only when you have enough eligible expenses to use the money.

For example, choosing a $3,400 health FSA election when you reasonably expect only $1,500 of qualifying costs could expose a substantial portion of the balance to forfeiture.

A safer approach is to base your election on predictable expenses and treat uncertain costs cautiously.

How Much Should You Contribute to an FSA?

The right contribution amount is usually based on predictable eligible expenses, not the maximum amount you are allowed to contribute.

Because unused money may be forfeited, a cautious estimate is often better than an aggressive one.

Review Last Year’s Eligible Expenses

Start with expenses you paid during the previous year that would have qualified for reimbursement.

Examples may include:

• Regular prescriptions
• Copayments and coinsurance
• Dental cleanings and planned treatment
• Eye exams, glasses, or contact lenses
• Therapy or other recurring care
• Ongoing dependent care costs

Remove one-time expenses that are unlikely to happen again.

Add Known Expenses for the Coming Year

Next, include costs you reasonably expect during the new plan year.

For example, you may know that you need:

• New prescription glasses
• Scheduled dental work
• Monthly prescription refills
• Regular specialist visits
• Preschool or after-school care

Use estimates from your healthcare provider, insurer, care provider, or previous bills when available.

Subtract Expected Insurance Payments

Estimate only the portion you expect to pay yourself.

If a dental procedure costs $1,500 but your insurance is expected to cover $900, the estimated FSA-eligible out-of-pocket amount would be $600, assuming the remaining expense qualifies.

Do not include expenses you expect another plan, insurer, or benefit to reimburse.

Leave Room for Uncertainty

You may want to contribute slightly less than your full estimate when some expenses are uncertain.

Suppose your predictable health FSA expenses total $1,800, with another possible $700 in treatment that may not occur. Choosing an amount close to the predictable $1,800 may reduce the risk of forfeiting unused money.

A small permitted carryover can provide some flexibility, but it should not replace careful planning.

Use a Simple Contribution Estimate

You can estimate your election with this formula:

For example:

This amount can then be divided by your remaining pay periods to estimate the payroll deduction.

Check the Plan Before Finalizing Your Election

Before enrolling, confirm:

• The annual contribution limit under your plan
• Whether your employer contributes
• Whether the plan offers a carryover or grace period
• The deadline for incurring expenses
• The deadline for submitting claims
• Whether planned expenses are eligible

The safest contribution amount is one you have a reasonable chance of using within the plan’s rules and deadlines.

FSA vs. HSA: What Is the Difference?

A flexible spending account and a health savings account can both provide tax advantages for eligible healthcare expenses, but they follow different ownership, eligibility, contribution, and rollover rules.

The better option depends largely on the health plan available to you and whether you qualify to contribute to an HSA.

FSA vs. HSA Comparison

HSA Eligibility Is More Restrictive

You generally must be covered by an HSA-eligible health plan and meet the other federal requirements to contribute to an HSA.

A general-purpose health FSA that reimburses medical expenses can normally make you ineligible to contribute to an HSA, even when the FSA is offered through your spouse’s employer and can reimburse your expenses. Limited-purpose and post-deductible FSAs may be compatible with an HSA when their rules meet federal requirements.

HSA Money Does Not Normally Expire

Unused HSA money generally remains in the account and continues to belong to you. You may carry the balance forward without the standard health FSA use-it-or-lose-it rule.

A health FSA may offer a limited carryover or grace period, but only when the employer includes that feature in the plan.

An FSA May Provide Faster Access to the Annual Election

With a health FSA, your full annual election is generally available for eligible reimbursement from the beginning of the coverage period.

With an HSA, you can reimburse only up to the amount currently available in the account. This may matter when you expect a large medical expense early in the year.

You May Not Have a Free Choice Between Them

Your employer’s benefits and health plan determine which accounts are available.

You may have access to:

• A health FSA without an HSA
• An HSA with no general-purpose health FSA
• An HSA paired with a compatible limited-purpose FSA
• Neither account

Before enrolling in an FSA while contributing to an HSA, verify that the FSA coverage is HSA-compatible. IRS Publication 969 explains the federal rules for both accounts and how other health coverage may affect HSA eligibility.

Is a Flexible Spending Account Worth It?

A flexible spending account may be worth using when you expect predictable eligible expenses and can choose a contribution amount you are likely to spend within the plan’s deadlines.

The potential tax savings can be useful, but they should be weighed against the risk of forfeiting unused money. Health FSAs generally follow use-it-or-lose-it rules, although an employer may offer a permitted carryover or grace period.

An FSA May Be a Good Fit If You:

• Have recurring prescriptions, copayments, dental costs, or vision expenses
• Expect a planned eligible medical procedure
• Pay regular qualifying daycare or dependent care expenses
• Can estimate your annual costs with reasonable confidence
• Understand your plan’s deadlines and reimbursement process
• Receive an employer contribution
• Want to spread expected expenses across regular payroll deductions

For example, suppose you expect to spend about $1,800 on eligible healthcare costs during the year. Contributing close to that amount may let you pay those expenses with pretax money without taking unnecessary forfeiture risk.

An FSA May Be Less Suitable If You:

• Rarely have eligible out-of-pocket expenses
• Cannot estimate your costs reliably
• May leave your employer during the plan year
• Find claim documentation difficult to manage
• Are eligible for an HSA and the offered FSA would interfere with HSA contributions
• Would need to contribute uncertain money simply to reach the annual maximum

An FSA is not automatically more valuable because you contribute more. The best election is usually based on expenses you reasonably expect to incur, not the highest amount the plan permits.

Questions to Ask Before Enrolling

Before making your election, check:

1. What expenses did you pay last year that would have qualified?
2. What eligible expenses are reasonably expected this year?
3. Does the plan offer a carryover or grace period?
4. What are the spending and claim-submission deadlines?
5. Does your employer contribute?
6. What happens to the balance if you leave your job?
7. Could the FSA affect your eligibility to contribute to an HSA?

A flexible spending account is most useful when it matches expenses already present in your monthly budget. It should help you pay planned costs more efficiently, not encourage you to spend money simply to avoid losing the balance.

How to Enroll in a Flexible Spending Account

You can enroll in an FSA only when an employer offers one. Enrollment usually takes place during the employer’s annual benefits enrollment period or when you first become eligible for workplace benefits.

The exact dates, account options, and enrollment process depend on your employer’s plan.

Review the FSA Options Available

Start by confirming which accounts your employer offers. These may include:

• A general-purpose health FSA
• A dependent care FSA
• A limited-purpose FSA for eligible dental and vision expenses
• A post-deductible FSA designed to work under specific plan rules

Do not assume every account is available or compatible with an HSA.

Read the Plan Documents

Before enrolling, check:

• Which expenses qualify
• The annual contribution limit under the plan
• Whether the employer contributes
• Whether unused health FSA money may carry over
• Whether the plan provides a grace period
• The expense-incurrence and claim-submission deadlines
• What happens if your employment ends
• How reimbursements and debit-card purchases are documented

Federal rules establish the general framework, but employers decide which permitted features to include in their plans.

Estimate Your Annual Expenses

List the eligible expenses you reasonably expect during the plan year.

Use predictable costs first, such as regular prescriptions, scheduled dental treatment, contact lenses, copayments, or recurring childcare. Be cautious with expenses that are uncertain or may be reimbursed elsewhere.

Choose Your Contribution Amount

Select an annual election that remains within your plan’s limit and reflects the amount you are reasonably likely to use.

The employer then generally divides the election across your pay periods. For example, a $1,800 annual election divided across 24 paychecks would result in a deduction of approximately $75 per paycheck.

Complete the Enrollment Process

Depending on your workplace, you may enroll through:

• An online employee benefits portal
• A benefits administrator’s website
• A paper enrollment form
• Your human resources department

Review your confirmation carefully to make sure the correct account and contribution amount were selected.

Know When You Can Change Your Election

FSA elections generally remain in place for the plan year. You may change or revoke an election only when federal rules and the employer’s plan permit it, such as after certain qualifying changes in status.

The events and changes allowed for a health FSA may differ from those allowed for dependent care benefits. Contact the plan administrator promptly after a relevant change because request deadlines may apply.

Re-Enroll When Required

An FSA election may not automatically continue into the next plan year. Review your employer’s enrollment instructions each year, even when you want to keep the same contribution amount.

Re-estimate your expenses rather than automatically repeating the previous election. Changes in insurance coverage, family care, prescriptions, or planned treatment may affect the amount you are likely to use.

FAQs About Flexible Spending Plans

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