Written by the TaxPlain Editorial Team · Reviewed for accuracy · Last updated August 2026
⚠️ Educational only. TaxPlain does not provide tax, legal, or financial advice. Always consult a qualified tax professional about your specific situation.
What this is
A Flexible Spending Account (FSA) is a pre-tax account offered through your employer that lets you set aside money from your paycheck before taxes to cover eligible medical or dependent care expenses. Because contributions come out before federal income tax, Social Security tax, and Medicare tax are calculated, an FSA effectively lowers your taxable income while helping you pay for costs you'd have anyway — copays, prescriptions, or daycare.
The FSA is easy to confuse with its cousin, the Health Savings Account (HSA), since both are pre-tax medical accounts. The key difference: an FSA is owned by your employer's plan and generally has a use-it-or-lose-it deadline, while an HSA is owned by you, requires a high-deductible health plan, and rolls over with no expiration. If you're comparing the two, see our HSA guide for the full breakdown.
There isn't just one kind of FSA. A Health FSA covers medical expenses, while a Dependent Care FSA — a completely separate account with its own limit — covers childcare or adult daycare costs that let you or your spouse work.
Who it affects
✓ Applies to
Employees whose employer offers an FSA through a Section 125 cafeteria plan, regardless of whether they also have other health coverage.
↑ Also applies to
Parents or caregivers paying for daycare, preschool, or adult dependent care — even if they don't use the health FSA.
📅 OPEN ENROLLMENT DEADLINE
Unlike an HSA, you generally can't open or change FSA contributions any time — you elect an amount during your employer's open enrollment period, and that election typically locks in for the plan year unless you have a qualifying life event (marriage, birth, job change).
FSA vs. HSA
FSA vs. HSA: what's the real difference?
These two accounts get confused constantly because both let you pay medical costs with pre-tax dollars. The differences that actually matter come down to ownership, expiration, and eligibility — not just the acronym.
Ownership — an FSA belongs to your employer's plan; an HSA belongs entirely to you, even if you change jobs.
Eligibility — anyone with employer FSA access can enroll; an HSA requires you to be covered by a qualifying high-deductible health plan (HDHP).
Expiration — FSA funds are generally use-it-or-lose-it each plan year; HSA funds roll over indefinitely and never expire.
Portability — leaving your job usually means losing unused FSA funds; your HSA balance stays with you for life.
2026 contribution limit — $3,400 for a health FSA vs. $4,400 (self-only) or $8,750 (family) for an HSA.
Investing — FSA funds sit as cash for the plan year; many HSAs let you invest the balance once it hits a threshold.
A separate account entirely
Dependent Care FSA
A Dependent Care FSA (sometimes called a DCAP) is not the same account as your health FSA — it has its own election, its own limit, and its own eligible expense list. It reimburses costs for childcare, preschool, before/after-school care, or adult daycare that allow you (and your spouse, if married) to work or look for work.
2026 limit — household
$7,500 per household, the first increase to this limit since 1986, under the One Big Beautiful Bill Act.
2026 limit — married filing separately
$3,750 if you're married and file a separate return from your spouse.
Because the health FSA and Dependent Care FSA are separate accounts, you can max out both in the same year — a $3,400 health FSA election and a $7,500 dependent care election aren't in competition with each other.
2026 contribution limits
How much can you contribute in 2026?
Per IRS Rev. Proc. 2025-32, released October 2025, these are the confirmed 2026 figures:
Health FSA — $3,400 per employee (up $100 from $3,300 in 2025).
Health FSA carryover — up to $680 may carry into 2026 if your employer's plan allows it (up from $660).
Dependent Care FSA — $7,500 per household ($3,750 if married filing separately).
Per-employee basis — the health FSA limit applies per person, so spouses who each have their own employer FSA can each contribute up to $3,400.
Eligible expenses
What can you actually buy with FSA money?
FSA funds can only reimburse expenses the IRS defines as qualified medical care, laid out in IRS Publication 502 — the same publication that governs the medical expense itemized deduction.
Copays and deductibles — amounts you pay out of pocket for covered medical visits.
Prescription medications — including many common maintenance drugs.
Dental and vision care — cleanings, glasses, contacts, and related costs.
Certain over-the-counter items — pain relievers, allergy medication, and similar products, without a prescription required.
Dependent Care FSA only — daycare, preschool tuition, and before/after-school programs, not medical costs.
Common mistakes to avoid
⚠️ Assuming FSA funds roll over like an HSA
Health FSAs are use-it-or-lose-it by default. Your employer may offer a $680 carryover or a short grace period — but never both, and neither is automatic unless your plan says so.
⚠️ Electing too much without a spending plan
Because FSA elections lock in at open enrollment, overestimating your medical or dependent care costs can leave you forfeiting money at year-end.
What to do right now
Check whether your employer's FSA plan offers a carryover or grace period, and confirm your remaining balance and plan-year deadline before it's too late to spend it. If you're deciding between an FSA and an HSA, compare your expected medical costs against each account's rules before open enrollment closes.
Questions to ask your tax professional
01Does my employer's FSA offer a carryover, a grace period, or neither?
02Should I use an FSA or an HSA given my current health plan?
03Can I contribute to both a health FSA and a Dependent Care FSA in the same year?
04How does a mid-year job change affect my FSA election?
05What happens to my FSA balance if I leave my employer?
Frequently asked questions
What is the FSA contribution limit for 2026?
For 2026, the health FSA contribution limit is $3,400 per employee, up $100 from 2025's $3,300, per IRS Rev. Proc. 2025-32. This limit applies per employee, so a married couple who each have access to their own FSA can each contribute up to $3,400.
What's the difference between an FSA and an HSA?
An FSA is offered through your employer and generally follows a use-it-or-lose-it rule each plan year, while an HSA requires a high-deductible health plan, is owned entirely by you, and rolls over indefinitely with no expiration. FSAs also allow both employee and employer to fund them, while HSAs are typically employee-funded with optional employer contributions.
What happens to FSA money if I don't use it?
Under the standard use-it-or-lose-it rule, unused health FSA funds are forfeited at the end of the plan year. Some employers offer either a $680 carryover (2026 limit) into the next year or a grace period of up to 2.5 extra months to spend the money — but not both, and not automatically. Check your specific plan's rules.
What is the Dependent Care FSA limit for 2026?
The Dependent Care FSA limit for 2026 is $7,500 per household, or $3,750 if married and filing separately, under the One Big Beautiful Bill Act — the first increase to this limit since 1986. This is a completely separate account and limit from the health FSA.
Can I use FSA money for anything?
No. FSA funds can only reimburse IRS-qualified medical expenses as defined in IRS Publication 502, such as copays, prescriptions, dental and vision care, and certain over-the-counter items. Dependent Care FSA funds are restricted separately to eligible child or adult daycare costs that allow you or your spouse to work.