Plan your Flexible Spending Account elections wisely with guidance on contribution limits, use-it-or-lose-it rules, eligible expenses, and dependent care FSA strategies.
The 2024 contribution limit is $3,200 per employee. Review last year's medical spending to estimate this year's costs. Contributing the maximum saves $700-1,000 in taxes at a 24-32% marginal rate.
Understand the use-it-or-lose-it rule
Unused FSA funds are forfeited at plan year end. Employers may offer either a $640 rollover or a 2.5-month grace period, but not both. Check your specific plan document for which option applies.
Learn your plan's run-out period for submitting claims
Most plans allow 60-90 days after the plan year ends to submit claims for expenses incurred during the plan year. Mark this deadline on your calendar to avoid forfeiting money.
Enroll during open enrollment or within 30 days of a qualifying event
FSA elections cannot be changed mid-year unless you have a qualifying life event such as marriage, birth of a child, or loss of other coverage. Plan your election carefully since you are locked in for the year.
Eligible Healthcare Expenses
Review the full list of FSA-eligible medical expenses
Eligible expenses include doctor copays, prescriptions, dental cleanings, eyeglasses, contact lenses, and mental health visits. Since 2020, over-the-counter medications and menstrual products also qualify without a prescription.
Plan for known medical expenses in the coming year
Factor in scheduled procedures, orthodontic payments, new eyeglasses, and routine care. If you are planning LASIK ($2,000-3,000 per eye), braces ($3,000-7,000), or other large expenses, increase your FSA election accordingly.
Know which expenses are not FSA-eligible
Cosmetic procedures, teeth whitening, gym memberships, and health insurance premiums are not eligible. Using your FSA card for ineligible purchases creates a taxable distribution plus potential penalties.
Dependent Care FSA
Determine if a dependent care FSA benefits you
The dependent care FSA limit is $5,000 per household ($2,500 if married filing separately). Compare this to the Child and Dependent Care Tax Credit, which may be more valuable if your income is under $43,000.
Confirm your childcare provider qualifies
The provider must have a tax ID number (SSN or EIN). Payments to your spouse, the child's parent, or your dependent under age 19 do not qualify. Day camps qualify but overnight camps do not.
Calculate your annual childcare costs accurately
Only contribute what you will actually spend since dependent care FSA funds are also use-it-or-lose-it. If your annual daycare cost is $12,000, contribute the $5,000 maximum. If it is $4,000, contribute $4,000.
Understand that dependent care FSA funds are available as contributed
Unlike healthcare FSAs where the full amount is available January 1, dependent care FSA funds are only available as payroll deductions accumulate throughout the year. Plan large payments accordingly.
Mid-Year Changes and Special Situations
Know which qualifying events allow mid-year FSA changes
Marriage, divorce, birth or adoption, death of a dependent, and change in employment status qualify. You typically have 30 days from the event to request an election change with your HR department.
Understand what happens to your FSA if you leave your job
Healthcare FSA funds are forfeited when your employment ends unless you elect COBRA continuation. COBRA for FSA coverage is rarely worth it since you pay the full contribution plus a 2% admin fee.
Coordinate FSA and HSA if changing health plans
You cannot have a general-purpose healthcare FSA and an HSA simultaneously. If switching to an HDHP with HSA, you must use a limited-purpose FSA that covers only dental and vision expenses.
Year-End Spending Strategy
Check your FSA balance in October or November
Log into your FSA administrator's website to see remaining funds. If you have more than $640 remaining (the maximum rollover amount), schedule appointments or make purchases before the plan year ends.
Schedule dental and vision appointments before year-end
Dental cleanings ($150-300), eye exams ($100-200), and new eyeglasses ($200-400) are easy ways to use remaining FSA funds. Many providers have increased availability in December as other patients do the same.
Stock up on eligible over-the-counter products
Bandages, first aid kits, sunscreen (SPF 15+), reading glasses, contact solution, and pain relievers are all FSA-eligible. Buy a year's supply of items you regularly use to avoid forfeiting funds.
Submit all outstanding claims before the run-out deadline
Gather receipts for any unreimbursed expenses from the plan year. Submit claims online or by mail before your plan's run-out deadline. Late claims are denied regardless of the amount.
Frequently Asked Questions
What happens to unused FSA money at the end of the year?
Under the use-it-or-lose-it rule, unspent Healthcare FSA funds are forfeited at plan year end. However, your employer may offer one of two relief options (not both): a $640 rollover into the next year, or a 2.5-month grace period to incur expenses. Dependent Care FSAs have no rollover provision. To avoid forfeiture, estimate conservatively and stock up on eligible items like glasses, contacts, and dental work in Q4 if you have excess funds.
What is the difference between an FSA and an HSA?
The key differences are: FSAs are employer-owned (you lose the account if you leave your job), have lower limits ($3,200 vs $8,300 for family HSA in 2024), and follow use-it-or-lose-it rules. HSAs are individually owned, roll over indefinitely, can be invested for growth, and follow you regardless of employment. HSAs require a high-deductible health plan; FSAs work with any employer-sponsored health plan. If you qualify for an HSA, it is almost always the better choice.
Can I use my FSA for over-the-counter medications?
Yes, since the CARES Act of 2020, all over-the-counter medications (pain relievers, allergy medicine, cold medicine, antacids) are FSA-eligible without a prescription. Menstrual care products, sunscreen (SPF 15+), first aid supplies, and COVID-19 home tests also qualify. The FSA Store website maintains a list of 4,000+ eligible items and accepts FSA debit cards directly.
How much should I contribute to my Healthcare FSA?
Review your prior year medical expenses as a baseline: copays, prescriptions, dental cleanings, vision exams, glasses and contacts, and any planned procedures. Add 10% for unexpected expenses. The 2024 maximum is $3,200 per employee. First-time FSA users should start conservatively at $1,000-$1,500 and increase the following year based on actual usage. If you are planning LASIK, orthodontics, or other large medical expenses, contribute closer to the maximum.