Health FSAs Explained: Limits, Deadlines and What They Cover

How a health flexible spending account works, the 2026 IRS limits, use-it-or-lose-it rules, eligible expenses and how FSAs interact with HSAs.

iHealthBenefit · Last reviewed October 26, 2026 · 6 min read

A health flexible spending arrangement, usually called a flexible spending account or FSA, lets you set aside part of your paycheck to pay for medical costs without paying federal income or employment taxes on that money. If you know you will spend money on copays, prescriptions, glasses or dental work next year, an FSA can stretch your budget.

FSAs come with two trade-offs that HSAs do not: they are only available through an employer, and the money is generally "use it or lose it." That makes your election amount a decision worth real thought.

This guide explains the federal rules as of October 2026, based on IRS publications. It is general information, not tax, financial or legal advice. Your employer's plan document sets many of the details, so read it and ask your benefits office or a tax professional about your own situation.

How a health FSA works

IRS Publication 969 (2025) describes health FSAs as employer-established benefit plans, usually funded by voluntary salary reductions, with optional employer contributions. The key features:

You choose how much to contribute at the beginning of the plan year, and your employer deducts it from your pay, generally every payday.
You do not pay federal income tax or employment taxes on the amounts you contribute or the amounts your employer contributes.
You can change or revoke your election during the year only if the law and your plan specifically allow it.
Self-employed people are not eligible for FSAs.

One feature works in your favor. Publication 969 says you must be able to receive the full amount you elected at any time during the coverage period, regardless of how much you have contributed so far. If you elect a year's worth of contributions and need a large procedure in February, the full election is available to reimburse it.

The 2026 limits

For plan years beginning in 2026, IRS Revenue Procedure 2025-32 and IRS Publication 15-B (2026) set the limit on employee salary reduction contributions to a health FSA at $3,400. If the plan allows carryovers, Revenue Procedure 2025-32 sets the maximum carryover amount at $680.

For comparison, Publication 969 (2025) lists the 2025 limits as $3,300 for contributions and $660 for carryovers. These amounts are adjusted for inflation, and as of late October 2026 the IRS had not yet announced the 2027 health FSA limits, so check IRS.gov or ask your employer before you choose your 2027 election. Your employer can choose to set lower limits than the IRS maximums.

Use it or lose it, with two possible escape hatches

Publication 969 (2025) says FSAs are generally "use-it-or-lose-it" plans: money left at the end of the plan year generally cannot carry over. A plan may soften this with one of two options, but not both:

A grace period of up to 2 1/2 months after the plan year ends, during which new expenses can be paid from last year's leftover money.
A carryover of unused money into the next plan year, up to the IRS maximum ($680 for plans that allow it in 2026, per Revenue Procedure 2025-32) or a lower amount set by the plan. Amounts above the carryover limit are forfeited.

Your employer does not have to offer either option, and Publication 969 says the employer is not permitted to refund any part of a leftover balance to you. Ask your plan administrator for the deadline to submit claims for the year, and note it on your calendar.

What an FSA can pay for

According to Publication 969 (2025), a health FSA reimburses qualified medical expenses for you, your spouse, your dependents and your children under age 27 at the end of the tax year. Expenses for over-the-counter medicine, whether or not prescribed, and menstrual care products count as medical care.

An FSA cannot reimburse:

Health insurance premiums.
Long-term care costs.
Amounts covered under another health plan.

To get reimbursed, you generally must provide a written statement from an independent third party showing the expense and its amount, plus a statement that it has not been paid by other coverage. If your employer provides an FSA debit card, it may handle some of this automatically, but keep receipts in case the plan asks for them. The FSA cannot reimburse future or projected expenses in advance.

The IRS also publishes FAQs on nutrition, wellness and general health costs. It says medical expenses must be primarily to alleviate or prevent a physical or mental disability or illness, and not merely beneficial to general health. Be wary of sellers who claim ordinary food, supplements or gym memberships are FSA-eligible for everyone; the IRS says those generally qualify only in narrow cases, such as treatment of a specific disease diagnosed by a physician.

Related accounts: HSAs and dependent care FSAs

FSAs and HSAs do not always mix. If you or your spouse might use a health savings account, pay attention. Publication 969 (2025) says that if you are covered by an HDHP and a health FSA that pays or reimburses qualified medical expenses, you generally cannot contribute to an HSA. A limited-purpose FSA, which covers items such as dental and vision care and preventive care, or a post-deductible FSA, does not block HSA contributions. If you want an HSA, ask whether your employer offers a limited-purpose FSA.

A dependent care FSA is a different account. IRS Publication 15-B (2026) says the care must be for a qualifying person, such as a young child, and must allow the employee to work. It cannot pay medical bills, and a health FSA cannot pay for child care. The same publication says the annual dependent care FSA limit for the 2026 tax year is $7,500 ($3,750 for married people filing separately), up from $5,000.

Choosing how much to put in

Because unused money is generally forfeited, many people base their election on costs they can predict. A simple approach:

List expenses you are fairly sure of: regular prescriptions, planned dental work, glasses or contacts, therapy copays and your deductible if you usually meet it.
Check your plan's Summary of Benefits and Coverage for copay and deductible amounts.
Add only a modest cushion for the unexpected.
Find out whether your plan offers a grace period or a carryover, and how much.

For example, imagine a family that expects about $1,200 in prescription copays and $800 for a child's braces adjustment next year. An election near $2,000 matches predictable costs; electing the maximum would risk forfeiting money if those costs fall short. This is a hypothetical example, not a recommendation for any amount.

Where to get help

Your employer's benefits office or FSA administrator can explain your plan's deadlines, card rules and eligible expenses. For tax questions, use IRS Publication 969 or talk with a licensed tax professional. For problems with your health plan itself, your state insurance department or, for most private employer plans, the U.S. Department of Labor's Employee Benefits Security Administration can help.

Key takeaways

A health FSA is an employer plan funded with pre-tax pay; self-employed people cannot have one.
For 2026, IRS Revenue Procedure 2025-32 sets the health FSA contribution limit at $3,400 and the maximum carryover at $680.
Leftover money is generally forfeited unless your plan offers a grace period of up to 2 1/2 months or a carryover, not both.
Your full annual election is available from the start of the plan year.
A general-purpose FSA usually blocks HSA contributions; a limited-purpose FSA does not.

Sources

Our articles are general information, not medical, insurance, tax or legal advice, and we don't sell insurance or recommend specific plans or companies.

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