A Flexible Spending Account (FSA) is an arrangement you set up through your employer to pay for many of your out-of-pocket medical expenses with tax-free dollars. These expenses include insurance copayments and deductibles, and qualified prescription drugs, insulin and medical devices.

You decide how much of your pre-tax wages you want taken out of your paycheck and put into an FSA.

  • You don’t have to pay taxes on this money.
  • Your employer’s plan sets a limit on the amount you can put into an FSA each year.
There is no carry-over of FSA funds.
  • This means that FSA funds you don’t spend by the end of the plan year can’t be used for expenses in the next year.
  • An exception is if your employer’s FSA plan permits you to use unused FSA funds for expenses incurred during a grace period after the end of the FSA plan year.
(Note: Flexible Spending Accounts are sometimes called Flexible Spending Arrangements.)