Benefits

Flexible Spending Account (FSA): 2026 Contribution Limits, Eligible Expenses, and Rules

A Flexible Spending Account (FSA) — also called a flexible spending arrangement — is an employer-sponsored, tax-advantaged account that allows employees to set aside pre-tax dollars to pay for qualified medical expenses or dependent care costs. The IRS classifies the health care flexible spending account as a benefit administered through employer cafeteria plans under Section 125 of the Internal Revenue Code.

When comparing an FSA and HSA, the key difference is that FSA funds are generally subject to a “use-it-or-lose-it” rule — unused funds may be forfeited at the end of the plan year, with limited exceptions. Unlike an HSA, an FSA does not require enrollment in a High Deductible Health Plan and is available with any employer-sponsored health coverage. For a full side-by-side breakdown of HSA vs FSA rules, see the comparison section below.

This page compiles the contribution limits, FSA eligible items and qualified expenses, carryover rules, dependent care flexible spending account provisions, and key differences between FSA and HSA based on official IRS sources.

FSA eligible 2026

Types of Flexible Spending Accounts

The IRS recognizes several types of FSAs under IRS Publication 969:

Health FSA (also called medical FSA, healthcare flexible spending account, or medical flexible spending account): The most common type. Covers qualified medical, dental, and vision expenses for the employee, spouse, and tax dependents. Employees use health FSA funds for FSA shopping — purchasing eligible medical products and services with pre-tax dollars through an FSA debit card or reimbursement claims.

Dependent Care FSA (DCFSA): A dependent care flexible spending account covers eligible childcare and elder care expenses — such as daycare, preschool, before/after school programs, and adult dependent care — that allow the employee (and spouse, if married) to work or look for work. Also referred to as a childcare flexible spending account. Governed by IRC Section 129.

Limited-Purpose FSA (LPFSA): A limited flexible spending account restricted to dental and vision expenses only. Designed to be used alongside an HSA — individuals who contribute to an HSA cannot participate in a general-purpose health FSA, but can use a limited FSA for dental and vision costs. See HSA Guide for HSA compatibility rules.

Health Reimbursement Arrangement (HRA): While not technically an FSA, HRAs are sometimes compared with FSAs — the terms FSA HRA are often searched together. An HRA is employer-funded (employees cannot contribute), and unused HRA funds may roll over depending on plan terms. The difference between an HRA and FSA is that HRAs are entirely employer-funded, while FSAs are funded through employee salary reductions. Note that despite the common term “FSA savings account,” an FSA is not a savings account — funds do not accumulate long-term and are subject to use-it-or-lose-it rules.

FSA Contribution Limits

The IRS adjusts FSA contribution limits annually for inflation. For 2026, the IRS announced the following limits:

Health FSA contribution limit for 2026: $3,400 per employee (up from $3,300 in 2025). This limit applies per employee, per employer — each FSA flexible spending account is tied to a single employer. If both spouses have access to eligible FSA health flexible spending account plans through separate employers, each can contribute up to $3,400 through FSA flex spending payroll deductions.

Health FSA carryover limit for 2026: $680 (up from $660 in 2025). Employers that allow carryovers permit employees to roll over up to this amount to the following plan year. Employers are not required to offer a carryover option.

Dependent Care FSA contribution limit for 2026: $7,500 per household (up from $5,000 in 2025). The limit is $3,750 for married individuals filing separately. The increase from $5,000 to $7,500 was enacted under the One Big Beautiful Bill Act (P.L. 119-21), effective for the 2026 tax year.

Employer contributions to an employee’s FSA do not count toward the employee’s contribution limit unless the plan is structured to include employer funding as part of the salary reduction.

FSA Tax Benefits

FSA contributions are made through pre-tax payroll deductions under the employer’s Section 125 cafeteria plan. This provides a dual tax advantage:

Pre-tax contributions: Employee contributions are excluded from federal income tax, Social Security tax (FICA), and Medicare tax. This reduces the employee’s taxable income and payroll tax liability.

Tax-free reimbursements: Withdrawals used for qualified expenses are not subject to federal income tax.

Unlike HSAs, FSA contributions are not reported as a deduction on the employee’s individual tax return — the tax benefit is built into the payroll withholding system. FSAs do not offer a third tax advantage (no investment growth component), and unused funds may be forfeited.

FSA Eligible Items and Qualified Expenses

FSA eligible items — also called FSA qualified items or FSA approved items — are defined under IRS Section 213(d) as qualified medical expenses. The list of FSA items eligible for reimbursement is the same definition that applies to HSAs. IRS Publication 502 provides the complete list of FSA eligible items for 2026, including flex spend account eligible items for both health and dependent care accounts.

What does FSA cover? Common FSA eligible purchases and FSA eligible products include doctor visits and specialist co-pays, hospital services and surgical fees, prescription medications, over-the-counter medications (no prescription required since the CARES Act), menstrual care products, dental care (cleanings, fillings, crowns, braces, orthodontics), vision care (eye exams, prescription glasses, contact lenses, LASIK surgery), mental health services, physical therapy and chiropractic care, FSA eligible medical supplies (crutches, blood pressure monitors, thermometers, first aid kits), and hearing aids. All of these are eligible FSA expenses that can be paid with pre-tax dollars.

Expenses that are NOT on the FSA approved expenses list: Cosmetic procedures (unless medically necessary), health insurance premiums, gym memberships and fitness programs, teeth whitening, and general wellness supplements not prescribed for a specific condition.

Dependent Care FSA eligible expenses covered by a dependent care flexible spending account include daycare and nursery school, preschool programs, before and after school care, summer day camps (not overnight camps), au pair or nanny services (for care, not household duties), and adult dependent care (elder care centers) for qualifying dependents who live with the employee at least half the year.

Use-It-or-Lose-It Rule and Exceptions

Under the IRS FSA rules, employees must generally incur eligible expenses by the end of the plan year or forfeit remaining funds. However, employers may offer one of two relief options (not both):

Carryover option: Employees can carry over up to $680 (2026 limit) of unused health FSA funds to the following plan year. Amounts above the carryover limit are forfeited. The carryover amount is set by the IRS and adjusted annually for inflation.

Grace period option: Employees receive an additional 2.5 months after the end of the plan year to incur eligible expenses. For a plan year ending December 31, the grace period extends through March 15 of the following year. Any remaining balance after the grace period is forfeited.

Employers choose whether to offer a carryover, a grace period, or neither. Employers are not required to offer either option. The specific terms are set in the employer’s plan document.

How FSA Funds Are Accessed

Health FSAs provide access to the full annual election amount on the first day of the plan year, regardless of how much has been contributed through payroll deductions to that point. This means an employee who elects $3,400 for the year can use the full $3,400 for a qualifying expense in January, even though only one month of payroll deductions has occurred.

If an employee leaves the employer mid-year after using more FSA funds than contributed, the employer generally cannot recover the difference. Conversely, if an employee leaves before using the full elected amount, the unused funds are forfeited (subject to COBRA continuation rights for health FSAs).

Most FSAs provide a debit card linked to the account for direct payment at the point of service. Employees may also submit receipts for reimbursement. The plan administrator may require documentation that expenses are qualified.

FSA and Job Changes

Health FSAs are tied to the employer’s plan and are not portable. When employment ends, the employee generally loses access to remaining health FSA funds unless COBRA continuation coverage is elected for the FSA. Under COBRA, terminated employees can continue to participate in the health FSA for the remainder of the plan year, but must pay the full contribution amount plus the 2% administrative fee.

Dependent Care FSAs are not subject to COBRA. Upon separation, an employee can still submit claims for dependent care expenses incurred before the employment termination date.

Frequently Asked Questions

What is the FSA contribution limit for 2026?

The IRS sets the 2026 health FSA contribution limit at $3,400 per employee. The dependent care FSA limit increases to $7,500 per household ($3,750 for married filing separately) under the One Big Beautiful Bill Act.

What is the difference between an FSA and an HSA?

The difference between an FSA and HSA — and the difference between HSA and FSA — comes down to ownership, eligibility, and rollover. The difference between an HSA and FSA is often the first question employees face during open enrollment. An FSA (flexible spending arrangement) is employer-owned, available with any health plan, and subject to use-it-or-lose-it rules — unused funds may be forfeited. An HSA (health savings account) is individually owned, requires enrollment in a High Deductible Health Plan, and funds roll over indefinitely with no expiration. HSA contribution limits are also higher ($4,400/$8,750 for 2026 vs. $3,400 for a health FSA) and HSA funds can be invested in stocks, bonds, and mutual funds. Both FSA and HSA accounts offer pre-tax contributions and tax-free withdrawals for qualified medical expenses. Note that the difference between an HRA vs FSA is separate — an HRA is entirely employer-funded and employees cannot contribute. See HSA Guide for a detailed comparison of HSA vs FSA rules.

Can I have both an FSA and an HSA?

An individual generally cannot contribute to both a general-purpose health FSA and an HSA in the same year. However, a limited-purpose FSA (restricted to dental and vision) or a post-deductible FSA can be paired with an HSA under IRS Publication 969 rules.

Do FSA funds expire?

Health FSA funds are subject to a use-it-or-lose-it rule. Unused funds may be forfeited at the end of the plan year unless the employer offers a carryover (up to $680 for 2026) or a 2.5-month grace period. The employer’s plan document determines which option, if any, is available.

Are over-the-counter medications on the FSA eligible items list?

Yes. Since the CARES Act (2020), over-the-counter medications are qualified medical expenses without a prescription. Menstrual care products are also eligible.

What happens to my FSA if I leave my job?

Health FSA funds are generally forfeited when employment ends, unless COBRA continuation is elected. Dependent Care FSA funds can be used for expenses incurred before the termination date. FSAs are not portable — they do not transfer to a new employer.

Sources

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This page compiles information from official government sources for general reference purposes. It does not constitute legal advice. Employment law is subject to legislative changes and judicial interpretation. For specific compliance questions, consultation with a licensed attorney. Last updated: March 2026.