FSA (Flexible Spending Account), Explained Simply

An FSA, or Flexible Spending Account, lets you set aside pre-tax money from your paycheck to pay for health costs like copays, prescriptions, and glasses.

The magic word here is pre-tax. Money goes into your FSA before taxes come out of your paycheck, so a dollar in the account is a full dollar you get to spend on care. If you would normally lose 25 cents of every dollar to taxes, that is real savings on stuff you were going to buy anyway.

You decide how much to contribute at the start of the plan year, and it comes out of your paychecks in even chunks. You can use it for a long list of things: doctor copays, dental work, contact lenses, bandages, even sunscreen. The IRS sets an annual limit, which is $3,400 for 2026.

There is one big catch. FSAs are mostly use it or lose it. If you put in $1,500 and only spend $1,100 by the deadline, that leftover $400 can vanish. Some plans let you roll over a small amount or give you a grace period, but not all. So estimate honestly. If you know you spend about $1,200 a year on prescriptions and checkups, setting aside $1,200 and saving maybe $300 in taxes is a smart, low-risk win.

Bottom line: An FSA turns money you were already going to spend on health care into pre-tax money, but only fund what you are confident you will use.

This is general education, not personal financial or tax advice. FSA rules and rollover options vary by employer, so check your plan documents.

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