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When it comes to paying for medical expenses tax-free, most people know about Health Savings Accounts (HSAs), but Health Flexible Spending Accounts (FSAs) are another popular option, especially for employees with traditional health plans.
FSAs can help reduce your out-of-pocket healthcare costs and lower your taxable income, but they work differently than HSAs. Let’s take a closer look.
Health Flexible Spending Account (FSA): A Quick Definition
A Health Flexible Spending Account is a special employer-sponsored benefit that allows employees to set aside pre-tax dollars to pay for eligible out-of-pocket medical expenses. These can include:
- Copays
- Prescriptions
- Dental and vision expenses
- Over-the-counter health items
The money you contribute isn’t taxed, which means you can stretch your dollars further on everyday healthcare costs.
Key Features of Health FSAs
✅ Tax-Free Contributions
Money goes into your FSA before federal (and often state) taxes are applied. This reduces your taxable income and saves you money.
✅ Immediate Access
Unlike HSAs, the full annual contribution amount is available on day one of the plan year—even if you haven’t made all your payroll contributions yet.
⚠️ “Use-It-or-Lose-It” Rule
Most FSAs have a spending deadline, typically the end of the plan year. Some employers offer:
- A short grace period (usually 2.5 months)
- Or the ability to roll over up to $680 (2026 limit) into the next year
Any unused funds beyond that are forfeited.
2026 Health FSA Contribution Limits
For 2026, the IRS allows employees to contribute up to $3,400 to a health FSA. The IRS may adjust this limit each year based on inflation.
Employers can also contribute to an employee’s FSA, though total combined contributions are subject to the same cap.
Health FSA vs. HSA: What’s the Difference?
Who Should Consider a Health FSA?
FSAs are a good fit if:
- You don’t have an HDHP, and therefore can’t use an HSA
- You expect predictable medical expenses (like prescriptions or regular doctor visits)
- Your employer offers one, and you’re comfortable tracking your spending
If used wisely, FSAs can provide meaningful savings without changing your health insurance plan.
LegUp Health Can Help
At LegUp Health, we help individuals and small businesses in Utah understand all their benefit options from FSAs to HSAs to HRAs. Whether you’re evaluating plans or looking to offer the right benefits to your team, we’re here to simplify the process.
Want help understanding which account(s) make the most sense for you or your business? Schedule a free consultation.
