An FSA is a office account that you just get out of your employer. It allows you to save pretax revenue to make use of for medical bills. It’s extra like a spending account than a financial savings account, although: Usually, you should use the cash you contribute inside a 12 months otherwise you lose it.
How Does It Work?
Firstly of the 12 months, you determine how a lot cash you need to put in your FSA. Your employer takes that quantity out of your paycheck earlier than the taxes in your earnings. You should utilize the cash in your FSA to pay for certified medical bills all year long. Employers also can contribute to FSAs, however they aren’t required to take action.
The large benefit of an FSA is that you just don’t pay federal, state, or Social Safety taxes on the cash you contribute and spend on medical functions. FSAs will also be used alongside any sort of employer well being plan.
A drawback is you could’t make investments or earn curiosity on FSA funds. Furthermore, in case you don’t use all the cash you deposit otherwise you depart your job earlier than spending it, you’ll probably lose it.
What Can FSA Funds Be Used For?
FSA funds can be utilized for certified medical bills, together with the next:
You’ll be able to’t use cash from an FSA to pay insurance coverage premiums, that are the funds you make every month to maintain your insurance coverage coverage energetic. You may not have the ability to use FSA cash for bills like beauty procedures, dietary supplements, and gymnasium memberships.
What’s the Max You Can Contribute to an FSA?
The sum of money you could put into an FSA is capped. In 2025, the restrict is $3,300, however your employer can set a decrease restrict. In case your partner is obtainable an FSA, they will additionally contribute as much as $3,300. The family FSA cap for 2025 is $6,600.
Even in case you don’t put any cash into your FSA, your employer can nonetheless contribute as much as $500. Nevertheless, pretax contributions from an employer which might be greater than $500 are restricted to a dollar-for-dollar match. Meaning you would need to contribute $1,000 on your employer to be allowed to chip in that very same quantity.
What Occurs to Unused Funds?
Usually, FSAs have a use-it-or-lose-it coverage, so any cash that’s left over on the finish of the calendar 12 months is gone. That’s why it’s necessary that you just solely contribute an quantity that you just assume you’ll spend.
Nevertheless, there are exceptions. Some employers provide grace durations of as much as two and a half months to make use of the cash within the account. Others let workers carry over a portion of the unused cash. The Inside Income Service (IRS) determines the utmost quantity that may be carried over every year. As much as $660 may be carried over from 2025 to 2026.
