Flexible Spending Accounts Explained  With Real Examples

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Most people with an FSA barely use it. Some don’t even know they have one. And plenty leave money behind each year because no one ever told them how it actually works.

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If that’s you, you’re not alone. The system isn’t exactly user-friendly. But once you understand how FSAs work, they become one of the easiest ways to save money on everyday health expenses.

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Here’s what you need to know.

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What Is an FSA?

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An FSA (Flexible Spending Account) is an employer-sponsored benefit that lets you set aside pre-tax money for health expenses. You decide how much to contribute at the beginning of the year, and that money gets deducted from your paycheck over time.

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The key benefit is that you’re using money before it gets taxed. That gives you more value for every dollar.

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If you’ve ever used an HSA, an FSA works similarly in some ways. But there’s one major difference: most FSAs expire at the end of the year. If you don’t use the money, you lose it.

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Why FSAs Save You Money

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When you contribute to an FSA, you’re lowering your taxable income. That means you get to use more of your paycheck on things you were likely going to buy anyway.

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For example, if you set aside $1,000 and you’re in a 25% tax bracket, that’s $250 you don’t owe in taxes. And you still have the full $1,000 to spend on eligible health purchases.

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The full amount is usually available on day one, too. So if you elect to contribute $2,000 for the year, you can use the entire $2,000 upfront, even if it hasn’t all been deducted from your pay yet.

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What You Can Spend It On

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FSAs cover a long list of qualified health expenses. This includes:

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• Doctor visits, prescriptions, and copays
• Therapy and mental health care
• Dental work and vision exams
• Over-the-counter meds and first-aid supplies
• Menstrual products, sunscreen, and certain supplements
• Some wellness items if approved by a doctor

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For items that fall into the “maybe” category, like protein powders or fitness gear, you may need a Letter of Medical Necessity (LMN). That’s just a short note from a doctor saying the item is part of a treatment plan.

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Wellness Pay makes this part easy. You get a quick virtual consult, and they handle the LMN for you. No paperwork, no back-and-forth.

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2025 FSA Contribution Limits

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The IRS allows up to $3,200 per year in FSA contributions for 2025.

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Your employer might also offer a small rollover amount (up to $640) or a short grace period into the new year, but these aren’t guaranteed. In most cases, if you don’t use your funds by the deadline, they’re gone.

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Why So Much FSA Money Goes Unused

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The biggest reason people lose FSA dollars is timing. They forget to spend it. Or they don’t realize what qualifies until it’s too late.

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Unlike HSAs, FSAs have a hard deadline. And unless your employer offers an exception, your balance resets at the end of each year. That means the clock is ticking from the day your plan starts.

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The fix is simple. Use your FSA intentionally and early. If you’re already spending money on therapy, dental work, or health-related products, your FSA can probably cover it. Services like Wellness Pay help you know what qualifies, get the paperwork done, and even look back at past purchases you may be able to reimburse.

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Bottom Line

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Your FSA is a built-in tax break on healthcare. But it only works if you use it before the deadline.

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You don’t need to wait until the last week of December to scramble. You can use your FSA now on things that improve your physical and mental health. And you can do it without guessing, with a little help from tools that handle the hard parts for you.