What Does Flex Spending Account Cover for Employees

A Flex Spending Account, or FSA, is a great way for employees to save money on out-of-pocket medical expenses. You can use it to cover a wide range of expenses.

Expenses related to medical care are covered by an FSA, including copays, prescriptions, and over-the-counter medications. This includes common expenses like glasses, contact lenses, and dental care.

Child care and elder care services are also eligible expenses for FSAs. This can be a huge help for working parents or caregivers who need to balance work and family responsibilities.

A flexible spending account, or FSA, is a tax-advantaged account where you can set aside a portion of each paycheck to pay for out-of-pocket medical expenses.

The great thing about FSAs is that no payroll taxes are due on funds allocated to an FSA, and the money can be used, tax-free, to pay for qualified medical expenses throughout the year.

You can contribute up to the IRS limit each year, which is $3,050 in 2024 and increasing to $3,200 in 2025.

Qualifying health expenses include copays for doctor, dentist, and optometrist visits, along with costs for over-the-counter medications, sunscreen, menstrual products, and more.

Here are some examples of eligible expenses:

Keep in mind that FSAs are a use-it-or-lose-it plan, but you may carry over a certain amount each year, which is $640 in 2024 and $660 in 2025.

You don't need to enroll in a medical plan to participate in a Health FSA. Employees who are eligible for benefits can enroll in the Health FSA when their employer offers it as an option.

You can be covered on a spouse's or parent's medical plan and still elect to participate in your company's Health FSA. Family members don't have to be enrolled in your medical plan to incur qualified expenses that you can reimburse from your Health FSA.

Here are the eligible family members who can incur qualified expenses:

You don't need to enroll in a medical plan to have an FSA, so you can participate in the Health FSA even if you're covered on a spouse's or parent's medical plan.

Your participation in the Health FSA isn't tied to enrollment in a medical plan like it is with an HSA.

Employees who are eligible for benefits can enroll in the Health FSA when their employer offers it as an option.

You can elect to participate in your company's Health FSA even if you're not enrolled in your company's medical plan.

Family members don't have to be enrolled in a participating employee's medical plan to incur qualified expenses that can be reimbursed from your Health FSA.

Here are the qualified family members who can incur expenses that can be reimbursed from your Health FSA:

A Premium Only Plan, or POP, is a great way to save on taxes when you enroll in a medical plan.

By using a POP, you can pay for employer-sponsored premiums on a pre-tax basis, which reduces your income taxes and increases your take-home pay.

Here are some benefits of using a POP:

Using a POP also reduces payroll taxes, making it a cost-effective way for employers to provide pretax benefits to their employees.

You can have multiple FSAs, and families aren't limited to just one. In fact, a family can have two or more Health FSAs.

Each FSA is subject to its own employer's maximum contribution limit, and you can elect up to that amount within IRS guidelines.

Setting up your Flexible Spending Account (FSA) is a straightforward process. You can contribute any amount up to the limit set by your employer, which can't be higher than the IRS limit.

The IRS sets yearly limits for FSA contributions, and these limits may change over time. In 2025, the cap is $3,300, up from $3,200 in 2024. Your employer may choose to set a lower limit, but not higher than the IRS allows.

You can choose to contribute any amount up to the limit set by your employer. If your spouse is also offered an FSA by their employer, they can contribute as well, potentially increasing your total household FSA contributions to as much as $6,600 in 2025.

Employers can contribute to their employees' FSAs, but the rules are a bit more complex. If the employer contributes, they can contribute up to $500 even if the employee contributes nothing at all. But pre-tax employer contributions above $500 are limited to a dollar-for-dollar match.

Here's a breakdown of the maximum allowable total contribution:

You can enroll in one type of FSA or both, and contribute tax-free dollars to your FSA(s) through payroll deductions. Contributions are subtracted from your paycheck before federal, state, and FICA taxes are calculated on your pay, so you save money on taxes.

FSA funds can be used for qualified medical expenses, which include prescriptions, office copays, deductibles, coinsurance, vision expenses, and dental expenses.

With an FSA, you can save an estimated 30% on healthcare expenses each year.

You can use your FSA funds for over-the-counter medications, including non-prescription medications, as long as they're for a qualified medical expense.

Menstrual products are also eligible expenses, and you can use your FSA funds to purchase them.

Male condoms are now considered a qualified medical expense and can be purchased with pre-tax FSA, HSA, or HRA funds.

Here are some examples of eligible expenses:

A Flexible Spending Account (FSA) can save you a significant amount of money on taxes, making it a great perk for employees. You can set aside funds on a pretax basis to spend on qualifying healthcare expenses throughout the plan year.

By contributing to a Health Care FSA, you can reduce FICA/Payroll taxes by 7.65% for every pretax dollar you contribute. This can be a huge advantage for employees and employers alike.

The tax savings from an FSA can add up quickly. For example, if your annual taxable income is $28,000 and you deposit $1,500 pretax into a Health Care Flexible Spending Account, your taxable income is reduced to $26,500, and you save $535 in federal and Social Security taxes.

Having an FSA can also improve recruiting, retention, and engagement for employers. It's a great way to offer a competitive benefit to employees while saving on payroll taxes.

Here's a breakdown of the potential tax savings with an FSA:

As you can see, having an FSA can make a big difference in your take-home pay.

Specialized FSAs can be a game-changer for those who need to cover specific expenses. Participant payroll deductions go into an account to pay for eligible medical expenses.

You can save an estimated 30% on healthcare expenses each year by having a Healthcare FSA. This can be a huge relief during emergencies.

Here are some examples of expenses that are covered under a Healthcare FSA:

Having money set aside for these expenses can improve your financial and mental wellbeing.

Limited Purpose Healthcare FSAs offer a convenient way to save for dental and vision expenses. These accounts allow you to make pre-tax deductions, reducing your total taxable income.

You can save an estimated 30% on vision and dental expenses each year by using a Limited Purpose FSA. This can add up to significant savings over time.

To be eligible for a Limited Purpose FSA, you can use the funds to pay for out-of-pocket vision and dental expenses. Examples of eligible expenses include dental office copays, braces, and orthodontia.

Here's a breakdown of the benefits of a Limited Purpose FSA:

You can use a Dependent Care FSA for eligible expenses like daycare, before- and after-school care, or summer day camps for kids under 13.

Eligible expenses also include care for tax dependents of any age who reside in your home, such as those needing adult day care services.

Examples of eligible expenses include work-related babysitting, after-school care, preschool, adult day programs, or in-home care.

Keep in mind that a Dependent Care FSA doesn't give you access to all your funds right away. You can only use the amount of money that you've contributed up to that point.