FSA (Flexible Spending Account)
A pre-tax account for medical expenses that must be used within the plan year or you lose the money (use-it-or-lose-it rule).
What You Need to Know
An FSA lets you set aside pre-tax dollars for healthcare costs, reducing your taxable income. The catch? Most FSAs have a strict "use-it-or-lose-it" policy—unused funds disappear at year-end.
How It Works:
- Contribute up to $3,200/year (2025 limit)
- Money is taken from your paycheck pre-tax
- Use it for copays, prescriptions, dental, vision, etc.
- Forfeit unused funds (some plans allow $640 rollover or 2.5-month grace period)
Tax Savings Example:
- Contribute $2,000 to FSA
- Tax bracket: 22% federal + 7.65% FICA = 29.65%
- Tax savings: $2,000 × 29.65% = $593
FSA vs. HSA:
- FSA: Use-it-or-lose-it, available with any health plan, employer owns it
- HSA: Money rolls over forever, requires high-deductible plan, you own it
Best For: People with predictable medical expenses (regular prescriptions, glasses, orthodontics). Don't overcontribute if you can't estimate usage—losing money hurts more than saving taxes.
Sources & References
This information is sourced from authoritative government and academic institutions:
- healthcare.gov
https://www.healthcare.gov/have-job-based-coverage/flexible-spending-accounts/
- irs.gov
https://www.irs.gov/publications/p969
Related Calculators & Tools
Put your knowledge into action with these interactive tools:
Related Terms in Healthcare
Coinsurance
Percentage of medical costs you pay after meeting deductible. 20% coinsurance on $1,000 bill = you pay $200, insurance pays $800.
Copay (Copayment)
Fixed dollar amount paid for doctor visits, prescriptions, or services. $30 specialist visit copay means you pay $30, insurance covers rest.
HMO (Health Maintenance Organization)
An HMO offers low-cost health insurance with a focus on preventive care and a network of providers.
In-Network
Doctors and hospitals contracted with your insurance for pre-negotiated rates. Lower costs, higher coverage. Always use in-network when possible.
Medicare
Medicare is a federal health insurance program for those 65+ and certain younger people, crucial for managing healthcare costs.
Medicare Advantage
Medicare Advantage is a private plan that covers Medicare benefits, often with extra perks.