Managing your healthcare expenses can feel overwhelming but a Flexible Spending Account (FSA) helps lighten the load. With an FSA you can set aside pre-tax dollars to cover everything from prescriptions to doctor visits making your money go further.
But before you decide how much to contribute it’s important to know the IRS guidelines that set the rules. These limits and requirements change from year to year and can impact how much you save. Understanding the basics ensures you get the most out of your FSA without running into any surprises.
Overview of Flexible Spending Accounts (FSAs)
Flexible Spending Accounts (FSAs) let you use pre-tax dollars to pay for eligible health or dependent care expenses. Employers offer FSAs as a benefit through payroll deductions. You select an annual contribution amount before the plan year starts, and funds are deducted a little at a time from each paycheck.
FSAs cover expenses like copays, prescription drugs, dental treatments, vision care, and certain over-the-counter products. Each employer plan can set specific rules, but all follow IRS guidelines for eligible spending.
You access your FSA funds with a special debit card or by submitting claims for reimbursement. The full annual amount is available for medical FSAs from day one of the plan year, even if you haven’t made all your payroll contributions yet.
FSAs differ from Health Savings Accounts (HSAs) in a few big ways: FSAs don’t require high-deductible health plans, and usually, funds don’t roll over year to year—except for a limited rollover amount or grace period, if your employer allows it. Using all your funds before the deadline helps you avoid losing money at year-end.
Employers own the FSA, so you can’t take your account with you if you change jobs. Understanding how FSAs work helps you maximize coverage for qualified healthcare expenses while reducing your taxable income.
What Are the IRS Guidelines for FSA Contributions?
IRS guidelines play a key role in how you use your FSA benefits each year. IRS rules set your maximum contribution, define who’s eligible, and outline what expenses qualify.
Annual Contribution Limits
IRS contribution limits for health FSAs change yearly based on inflation adjustments. For the 2024 plan year, you can contribute up to $3,200 to your health FSA (IRS Notice 2023-73). Employers may set a lower cap, but not a higher one. If your employer allows, you can also carry over up to $640 of unused funds into the next plan year. These limits do not include employer contributions, which are rare with FSAs but are counted toward your annual maximum if available.
Eligibility Requirements
You can enroll in a health FSA if your employer offers one and you aren’t enrolled in a high-deductible health plan (HDHP) paired with an HSA in the same tax year. Only employees of companies who sponsor these accounts qualify for enrollment. You designate your annual FSA contribution during open enrollment and can’t change the amount mid-year unless you experience a qualifying event, such as marriage or birth of a child. HSAs have separate rules, but you can’t contribute to both an HSA and a general-purpose health FSA in the same year.
Important Rules and Restrictions
IRS guidelines for FSA contributions set clear boundaries on how you use your account and help you avoid costly mistakes. Understanding these restrictions helps you maximize every dollar you set aside.
Eligible Expenses
You can use FSA contributions only for IRS-approved eligible expenses. Examples include copayments, prescriptions, dental cleanings, orthodontics, eyeglasses, and contact lenses. Medical supplies such as bandages, insulin, and certain over-the-counter products also count. Cosmetic procedures, health club dues, and nonprescription vitamins fall outside approved categories according to IRS Publication 502.
Use-It-or-Lose-It Rule and Grace Period
You risk forfeiting unused FSA funds at year-end due to the use-it-or-lose-it rule. Some employers offer a grace period of up to 2.5 months to spend prior-year funds, or they may let you carry over up to $640 (2024) to the next plan year, but not both. If neither is available through your employer, you lose leftover funds at the close of the plan year.
Recent Changes and Updates to IRS FSA Guidelines
Federal contribution limits for health FSAs increased for the 2024 plan year. You can contribute up to $3,200, which is a $150 increase over 2023, according to IRS Notice 2023-74.
Carryover limits also rose. If your employer offers the carryover option, you can bring up to $640 in unused funds into the 2025 plan year. This increased by $30 from last year’s $610 maximum.
Eligible expense definitions expanded. More over-the-counter medications, menstrual care products, and some personal protective items remain qualified under the CARES Act updates.
Remote and telemedicine services became eligible for reimbursement on a temporary basis, allowing you to use FSA dollars for virtual doctor visits, but these may be subject to expiration if Congress or the IRS doesn’t renew these inclusions.
Employer flexibility changed slightly. More employers adopted either the grace period or carryover option following IRS pandemic relief but you’ll never have access to both in the same plan year.
Contribution limits and eligible expenses typically update annually. Plan administrators notify you about new options and limits during your company’s open enrollment.
You can review annual changes and IRS guidance at IRS.gov. These updates influence how you budget for healthcare and maximize FSA savings each plan year.
| Plan Year | Health FSA Contribution Limit | Carryover Limit (if permitted) |
|---|---|---|
| 2023 | $3,050 | $610 |
| 2024 | $3,200 | $640 |
Tips for Maximizing Your FSA Benefits
Track All Qualified Expenses
Submit every eligible receipt to your FSA provider as soon as you incur the cost, as IRS guidelines allow reimbursement for expenses like copays, prescriptions, dental work, and vision care. Keep documentation for out-of-pocket costs, since purchases at some retail locations might not auto-verify.
Plan Contributions Carefully
Estimate your expected medical costs using prior year expenses, known prescriptions, and scheduled procedures, because unused funds might expire under the use-it-or-lose-it rule. Check if your employer offers a grace period or carryover option, which affects how you budget for expenses near year-end.
Check Eligible Expenses Regularly
Review current IRS FSA eligibility lists before spending; eligible expenses change—2024 includes items such as over-the-counter medications and menstrual care products. Use your employer’s FSA portal or the official IRS website for up-to-date information.
Coordinate With HSA or Dependent-Care Accounts
You can’t contribute to both an HSA and a general-purpose FSA in the same year, per IRS rules. Pair a limited-purpose FSA for dental and vision with an HSA for broader tax savings if your plan allows.
Use FSA Debit Cards for Qualified Purchases
Pay directly for prescriptions and other approved products using your FSA debit card whenever possible to avoid lengthy reimbursement requests. Retain itemized receipts for IRS or provider audits.
Monitor Year-End Deadlines
Set reminders to spend or submit claims before your plan year ends, unless your employer permits a carryover or grace period. Eligible expenses must occur within the coverage period, or up to two and a half extra months for plans with a grace period.
Maximize Over-the-Counter (OTC) Options
Use the expanded IRS OTC provisions for 2024 to purchase nonprescription drugs, select medical devices, and menstrual care products. List expenses by category to track usage across different benefit options.
| Tip Category | Details | 2024 Regulations/Updates |
|---|---|---|
| Contribution Planning | Estimate needs, account for grace/carryover | Max $3,200 per health FSA, up to $640 carryover |
| Eligible Expenses Review | Check IRS/employer updates for additions/removals | More OTC and menstrual products are eligible |
| Documentation | Save receipts for all claims and potential audits | FSA debit cards simplify direct purchases |
| HSA Coordination | Pair limited FSA with HSA if offered | Can’t use general FSA and HSA in the same year |
| Deadline Tracking | Monitor plan-year, grace period, and carryover options | Grace or carryover—never both, per IRS rules |
You gain the most value from your FSA when you track spending, follow updated eligibility, and use all available features to match your financial and healthcare needs.
Conclusion
Staying up to date with IRS guidelines for FSA contributions can make a real difference in how much you save on healthcare each year. As rules and limits shift, a little planning and attention to detail will help you get the most out of your account.
If you ever have questions about your FSA or want to make sure you’re following the latest rules, reach out to your HR department or benefits provider. With the right approach, you’ll make your FSA work even harder for you and your family.
