What Does FSA Eligible Mean? A List of Qualifying Expenses

A Flexible Spending Account (FSA) is an employer-sponsored benefit that allows individuals to set aside pre-tax money from their paychecks to cover qualified out-of-pocket healthcare costs. This arrangement offers a tax advantage, as the funds contributed are not subject to federal income, Social Security, or Medicare taxes. Understanding what constitutes an “FSA eligible” expense is important for maximizing the benefits of this account and avoiding potential issues.

Qualifying Medical Expenses

The Internal Revenue Service (IRS) establishes the types of expenses that qualify for FSA reimbursement, ensuring they are primarily for medical care. These broadly include general medical costs such as doctor visits, hospital stays, deductibles, and co-payments for services. Prescription medications, including qualified prescription drugs and insulin, are consistently eligible for reimbursement. Over-the-counter (OTC) medicines and drugs, along with feminine hygiene products, are now eligible without requiring a physician’s prescription.

Dental care expenses, including routine exams, cleanings, fillings, X-rays, extractions, and orthodontics like braces, are typically covered. Similarly, vision care costs, such as eye exams, eyeglasses, contact lenses, and even laser eye surgery, qualify for reimbursement. Beyond these categories, many specific medical items are also eligible, including first-aid supplies, crutches, breast pumps, blood pressure monitors, and medical alert devices. Services like acupuncture and chiropractic care can also be reimbursed. Expenses must be for diagnosing, curing, mitigating, treating, or preventing disease, or for affecting any structure or function of the body, rather than for general health or cosmetic purposes.

Using Your FSA

FSA funds can be accessed through two main methods: using an FSA debit card or submitting claims for reimbursement. An FSA debit card is directly linked to your flexible spending account. This card allows for direct payment at the point of sale for eligible medical services and products, often at pharmacies, doctor’s offices, and vision centers. While convenient, some debit card transactions may still require substantiation, meaning you might need to provide additional documentation to verify eligibility.

Alternatively, you can pay for eligible expenses out-of-pocket and then submit a claim for reimbursement from your FSA. This process involves completing a reimbursement request form and providing documentation to your plan administrator. Required documentation commonly includes itemized receipts that clearly show the provider’s name, the date of service, a description of the service or item, and the amount charged. For services covered by insurance, an Explanation of Benefits (EOB) form from your health insurance carrier is also a necessary document.

Managing Unused Funds

The “use it or lose it” rule stipulates that FSA funds generally must be used by the end of the plan year or they are forfeited. This IRS-established rule aims to prevent FSAs from functioning as long-term savings accounts. However, employers can offer certain options to provide more flexibility regarding unused funds.

One common option is a grace period, which allows participants up to an additional 2.5 months after the plan year ends to incur and claim eligible expenses. Another alternative is the carryover option, which permits a limited amount of unused funds to be rolled over into the next plan year.

Employers have the discretion to offer either the grace period or the carryover option, but not both, for a medical FSA. Some employers may choose not to offer either exception, strictly adhering to the “use it or lose it” rule. Individuals should confirm with their employer which, if any, of these provisions apply to their specific FSA plan to manage their funds and avoid forfeiture.