How to Use a Flexible Spending Account Without Losing Your Money

Last updated July 2, 2026

Flexible Spending Accounts allow employees to set aside pre-tax dollars for healthcare or dependent care expenses, reducing taxable income and effectively discounting those expenses by your marginal tax rate. The 2026 healthcare FSA contribution limit is $3,400. Dependent care FSAs allow up to $7,500 per household for childcare expenses for children under 13 starting in 2026. For a worker in the 22 percent federal bracket, a full healthcare FSA contribution saves approximately $748 in federal income tax plus FICA savings on the contributed amount. a meaningful return on an account that costs nothing to maintain.

The use-it-or-lose-it rule is the central planning challenge. Unlike HSAs, FSA funds that are not used by the end of the plan year are forfeited. though many employers allow either a $660 rollover or a 2.5-month grace period. The planning strategy is to estimate your realistic annual healthcare spending as conservatively as possible, contribute that amount, and use the funds systematically throughout the year. Eligible expenses are broader than most people realize: prescription medications, dental and vision care, contacts and glasses, medical equipment, over-the-counter medications, and certain mental health services all qualify. Sunscreen with SPF 15 or higher and menstrual care products became permanently eligible under the CARES Act.

Contribute to an FSA only what you are confident you will spend during the plan year. The tax savings are real and immediate, but forfeited balances eliminate the benefit entirely. If your employer offers a grace period or rollover, use that to your advantage by contributing a modest amount above your expected needs. For dependent care, the $7,500 FSA limit — raised from $5,000 by the One Big Beautiful Bill Act starting in 2026 — is almost always worth using fully for families with qualifying childcare expenses.