What Is an FSA, and How Does It Work?
A Flexible Spending Account, or FSA, lets you set aside money from your paycheck to pay for health care. You don't pay taxes on that money, so your care costs you less. But an FSA has a few rules that are good to know before you sign up.
Who can get one?
You get an FSA through your job. Not every employer offers one. Unlike an HSA, you don't need a special health plan. You can usually have an FSA with an HMO, a PPO or other plans.
How it works
Pick an amount. During open enrollment, you choose how much to put in for the whole year. For 2026, the most you can put in is $3,400. The limit usually goes up a little each year.
Money comes out of each paycheck. Your total is split up evenly and taken out before taxes.
Spend it on care. Use your FSA card, or pay and send in your receipt to get paid back.
A surprising perk: all your money on day one
With most FSAs, your whole yearly amount is ready to use on the first day of the plan year. Even if you've only put in $100 so far, you could use all $3,400 for a surgery in January.
The big rule: use it or lose it
FSA money doesn't roll over like an HSA. If you don't spend it by the end of the plan year, you usually lose it. Some employers give you a little extra help:
Carryover: You can bring a small amount into next year. For 2026 money moving into 2027, that's up to $680.
Grace period: You get up to 2.5 extra months to spend the money.
Your employer can offer one of these or neither, but not both.
Other things to know
You can't change your amount mid-year, unless you have a big life change, like a new baby or a marriage.
If you leave your job, you usually lose any money you haven't spent.
You have to sign up again every year.
Meet Ben
Ben wears glasses and takes allergy medicine. He also has two dentist visits a year. He adds it up: about $1,200 a year. He puts $1,200 into his FSA. Because that money isn't taxed, Ben saves about $350 compared to paying with regular money.
Ben picked an amount based on costs he knew were coming. That way, he won't lose any money at the end of the year.
Key takeaways
An FSA lets you pay for health care with money that isn't taxed.
You choose your amount each year, and the full amount is usually ready on day one.
Plan carefully: unused money is usually lost at the end of the year.
