How to Spend Your FSA Money on Eligible Expenses

A Flexible Spending Account (FSA) offers a valuable way to manage healthcare costs by allowing you to set aside pre-tax money for eligible medical expenses. These funds are deducted from your paycheck before taxes, which can reduce your taxable income. An FSA is distinct from regular savings accounts because it operates under a “use-it-or-lose-it” principle, meaning that generally, any money not spent by the end of the plan year may be forfeited. Understanding how to effectively utilize these accounts is important for maximizing their tax benefits and ensuring you do not lose your contributions.

Eligible Health Care Expenses

Flexible Spending Accounts cover a broad range of healthcare expenses, as defined by the Internal Revenue Service (IRS). The IRS specifies that medical care expenses must primarily serve to alleviate or prevent a physical or mental disability or illness. This definition excludes expenses that are merely beneficial to general health or cosmetic purposes.

Eligible expenses encompass a variety of medical services and products. This includes doctor’s fees for office visits, co-payments, deductibles, and coinsurance for health plans. Hospital fees, surgery costs, and diagnostic services like lab work and X-rays are also typically covered. Payments for therapy and counseling services are often eligible. However, some may require a Letter of Medical Necessity to confirm their medical purpose.

Dental care is a significant category of eligible expenses, covering services such as dental treatments, fillings, cleanings, and diagnostic services. Orthodontia and dentures, including bridges, also qualify. However, cosmetic dental procedures like teeth whitening are generally not eligible.

Vision care expenses are also widely covered by FSAs. This includes eye examinations, prescription eyeglasses, contact lenses and their solutions. Procedures like LASIK eye surgery and radial keratotomy, performed to correct vision, are eligible. Prescription sunglasses are also typically included if they are medically necessary.

Prescription medications are fully eligible for FSA reimbursement. Many over-the-counter (OTC) medicines and drugs no longer require a prescription to be eligible for FSA reimbursement. This includes common items such as pain relievers, allergy medications, cold and flu remedies, antacids, and feminine hygiene products. General health products like vitamins or supplements are typically only eligible if prescribed by a doctor to treat a specific medical condition.

Durable medical equipment (DME) is another important category for FSA use. Durable medical equipment (DME) includes items like crutches, wheelchairs, blood pressure monitors, CPAP machines, and nebulizers. These are provided they are medically necessary and intended for repeated use. Adaptive equipment, such as that for mobility or home safety for medical purposes, also qualifies.

Certain specialized services and items may also be eligible. This can include costs associated with alcoholism or drug addiction treatment, acupuncture, chiropractic services, and even mileage or travel costs incurred to receive eligible medical care.

Using Your FSA Funds

Accessing your FSA funds for eligible healthcare expenses can be done through several practical methods, primarily using an FSA debit card or submitting claims for reimbursement.

Many FSA plans provide a dedicated debit card, which functions similarly to a regular bank card at the point of sale. You can swipe this card at pharmacies, doctor’s offices, and other healthcare providers to directly pay for eligible expenses. These cards are often accepted at merchants with an Inventory Information Approval System (IIAS), which automatically identifies eligible medical products, making transactions smoother.

Substantiation is often required by the IRS to verify that a purchase was for an eligible expense. Even when using the debit card, you may receive requests for documentation, especially if the purchase cannot be automatically verified by the merchant’s system. If documentation is not provided within a specified timeframe, typically around 90 days, the transaction may be denied, and your card could be suspended.

When an FSA debit card is not used, or for out-of-pocket expenses, you can seek reimbursement by submitting a claim to your FSA administrator. The reimbursement process typically involves completing a claim form and providing supporting documentation. This documentation must be detailed, including the provider’s name, date of service, a clear description of the service or item, the patient’s name, and the amount charged. Acceptable forms of documentation include itemized statements, Explanation of Benefits (EOBs) from your insurance provider, or pharmacy printouts for prescriptions.

Claim forms can often be submitted online through a participant portal, via a mobile app, by fax, or through mail. When submitting online or via an app, you typically upload digital copies of your receipts and other supporting documents. Some FSA administrators also offer the option for direct payment to a healthcare provider for outstanding balances, which can simplify the process.

Important Rules and Record Keeping

Managing a Flexible Spending Account effectively involves understanding key rules and maintaining diligent records to avoid forfeiture of funds and ensure smooth reimbursements. A fundamental principle of FSAs is the “use-it-or-lose-it” rule, which mandates that funds generally must be spent by the end of the plan year or they will be forfeited. This rule underscores the importance of planning your healthcare expenditures carefully throughout the year.

There are, however, two common exceptions to the “use-it-or-lose-it” rule that employers may choose to offer: a grace period or a carryover option. An employer can offer either, but not both. A grace period allows you an extended timeframe, up to an additional two and a half months after the plan year ends, to incur new eligible expenses and use the remaining funds from the previous year.

Alternatively, an employer might allow a carryover of unused funds into the next plan year. For 2025, the IRS has set the maximum carryover amount at $660. This means if you have funds remaining at the end of the plan year, a portion, up to the set limit, can roll over and be available for use in the subsequent year. These exceptions provide flexibility, but it is important to confirm which, if any, your specific FSA plan offers, as they are not universal.

Thorough record keeping is crucial for FSA compliance and successful reimbursement. The IRS requires all FSA transactions to be substantiated, meaning proof is needed that the purchase was for an eligible medical expense. You should retain detailed documentation for every FSA purchase, even those made with a debit card, as you may be asked to provide it for verification.

Acceptable documentation typically includes itemized receipts, Explanation of Benefits (EOBs) from your health insurance provider, or detailed statements from healthcare providers. These documents must clearly show the date of service, the provider’s name, a description of the service or item, and the amount charged. Credit card receipts or canceled checks are generally not sufficient on their own because they often lack the necessary detail about the expense. Organizing your receipts, perhaps by keeping digital copies or a dedicated physical folder, can simplify the process if substantiation is requested or in case of an audit.