Check the background of your financial professional on Broker Check logo

If you have access to a flexible spending account (FSA) through your employer, it’s a useful benefit that can save you money and help defray medical expenses. But many employees fail to use the money before the end of the year and risk forfeiting the funds. Others, not fully understanding the benefits of an FSA, may forgo this benefit altogether.

Here’s what you need to know about FSAs and how to maximize the benefits you get from them without forfeiting money at the end of the year.

Why You Must Spend Your Flexible Spending Account (FSA) Funds Each Year

An FSA is an employer-sponsored healthcare savings account that allows you to set aside money each year on a pre-tax basis to cover the cost of qualified medical expenses that you will have during that year. Employees fund their accounts through payroll deductions, allowing them to pay for medical expenses pre-tax.

In 2022, the IRS raised the annual limit to $2,850. And if you’re married and your spouse has an FSA through their employer, they can also contribute $2,850. So two-income households can set aside up to $5,700 pre-tax to cover qualified medical expenses, which amounts to significant savings in tax liability.

But there’s a catch. FSA funds are subject to “use it or lose it” stipulations. If you choose to set the money aside and do not use it for a qualified health-related expense by the deadline at the end of the year, you will forfeit the funds to your employer. Some employers allow for deadline extensions, a grace period, and rollovers, but this is not always an option.

So if you’re going to participate in your employer’s FSA, it’s important that you start by planning carefully. Familiarize yourself with how the funds can be used and only put aside the amount of money realistically needed to spend on qualified expenses.

What’s Eligible for FSA Coverage

Health-related expenses can significantly dent your household budget. The tax savings an FSA provides serves to offset some of your out-of-pocket costs. So what can you purchase with your FSA dollars?

Some examples of FSA-eligible expenses include insurance copayments, some medical procedures or treatments not covered by insurance, non-cosmetic elective surgery, prescription medications, some over-the-counter medicines, medical equipment such as crutches, bandages, thermometers, blood sugar test kits, acupuncture, chiropractic care, eye care, dental treatments, nicotine patches and gum, acne treatments, or orthopedic shoe inserts.

Some items you probably haven’t considered that may be eligible include air purifiers, DNA kits with health reports, baby products such as nursing supplies and potty-training items, pregnancy and family planning items such as tests and fertility treatments, psychotherapy, sunscreen, and a new addition to the list — feminine hygiene menstrual products.

Some of the items listed come with stipulations and require approval, so if you have questions, check with your plan administrator. It’s also important to note that some items not covered in the past are now eligible due to the CARES Act, which can always change. (1)

What’s Excluded from FSA Coverage

Just because something is a medical or health-related expense doesn’t mean it’s automatically eligible for FSA. Keep in mind that the rules are subject to change — some items that used to be allowed may no longer be eligible and vice versa.

Examples of the kinds of items that are not covered by FSA include insurance premiums, cosmetic surgery and procedures, vitamins, supplements, marriage counseling, personal care items such as toothpaste and toiletries, gym memberships, most weight loss programs, hair loss treatments, teeth whitening, non-medical domestic help when medically impaired, or travel and childcare related to medical appointments or hospital stays.

Before using flexible spending account funds, always check to ensure the item in question is eligible first.

Don’t Leave Money on the Table

Most people can save money in taxes by funding an FSA. Even just setting aside enough pre-tax dollars to cover minimal copays for check-ups and regular appointments with your doctors and dentist can be helpful.

Do you have major medical expenses coming up next year, such as a scheduled knee replacement or extensive dental work? Maxing out your FSA can help make up for some of the out-of-pocket costs.

For many people, not using their FSA benefits leaves money on the table. And for others, setting aside funds that go unused due to pushing back appointments or poor planning can leave them scrambling to use the money before the year-end deadline.

Remember, your employer sets the rules, so it’s your responsibility to check with HR for rollover guidelines and grace periods; most offer an extra 2 ½ months to use the money, and some allow you to carry over up to $570. Not taking advantage of this benefit or carefully managing it could come at your loss.



Kevin Stoddard is a LPL Financial Advisor with Stoddard Financial in Medfield, Massachusetts. Stoddard helps clients throughout New England to identify, plan, and execute strategies designed for securing their desired financial future. With their Financial Wellness @ Work program, they engage, educate, and empower employees by helping them to understand and appreciate the value of their benefits package. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

This material was prepared by Crystal Marketing Solutions, LLC, and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate and is intended merely for educational purposes, not as advice.