Is An FSA Worth It?

Medical expenses are arguably one of the least fun things we have to spend money on. But they are often a necessity for your health and that of your family members. Even so, healthcare costs can get expensive when you factor in insurance copays, deductibles, prescription medications, over-the-counter supplies, dental and vision care visits, and more.

One way to help ease the pain of paying for medical expenses is to use pre-tax dollars from your paycheck. You can do this with a flexible spending arrangement (FSA) if your employer offers this option. In this article, we explore how FSAs work and whether one is worth getting.

If you’re wondering what an FSA is and how it works, we explore that in depth below. But first, we share the hot takes from a variety of legal, financial, and tax experts on whether an FSA is worth it. Here’s what they had to say.

Do you have some predictable healthcare expenses?

“If you are an individual with predictable, known expenses, such as prescriptions, therapy, and ongoing treatments, and you will consistently bear the burden of those expenses throughout the year, you’ll benefit from an FSA.” —Joe Braier, president and CEO of Lake Country Advisors

Do you spend about $1,500 or more on healthcare costs annually?

“FSAs tend to work really well for W-2 employees who wear glasses, have regular prescriptions, or go to the dentist twice a year. Those three things alone usually justify it. The decision doesn’t have to be complicated. If you can predict $1,500 in healthcare spending, an FSA saves you real money. —Russell Moran, owner of Russell Moran Enterprises

Do you have a growing family?

“The best FSA candidates are those with young children who need regular visits to the pediatrician, those with chronic health conditions who have ongoing prescription costs, those who have planned dental or vision expenses for the year, and working parents who have dependent-care expenses. These are people who are going to spend that money regardless. The FSA just lets them spend pre-tax dollars instead of post-tax ones.” —Yad Senapathy, MS, PMP, Founder and CEO of the Project Management Training Institute (PMTI)

Notes on tax savings

“Every dollar you put into an FSA comes out of your paycheck before taxes are calculated, which means you never pay federal income tax, state income tax, or payroll tax on that money.” —Brennan Kolar, founder of Atlas CPA Index

“The tax savings on an FSA are actually pretty big. Most articles don’t explain it well because they forget to include FICA. When you put $3,400 into a health FSA in 2026, you’re not just saving on income tax. You're also avoiding the 7.65% FICA charge for Social Security and Medicare.” —George Dimov, founder and CEO of DIMOV Tax.

In many cases, as the experts quoted above describe, an FSA will be worth it. However, some situations might not make an FSA worth it.

• Your medical expenses tend to be very low
• You incur some unpredictable healthcare expenses, but rarely
• You don’t want the concern of forfeiting unused dollars
• You don’t want to save receipts and other documentation

An FSA allows you to contribute some of your pre-tax dollars to an arrangement that you can then use to pay for—or get reimbursed for—qualifying expenses.

In doing so, you’ll lower your taxable income. According to the federal government, many FSA users save an average of around 30% by spending pre-tax dollars. HSA/FSA tax savings vary. Learn more at truemed.com/disclosures.

You might encounter three types of FSAs, depending on what your employer offers.

FSA types:

• Healthcare (HCFSA): Helps pay for out-of-pocket medical, dental, and vision expenses, including copays, deductibles, prescriptions, and other qualifying medical expenses.
• Limited purpose FSA (LPFSA): Helps pay for out-of-pocket dental and vision expenses only and must be used with a high-deductible health plan (HDHP) and a health savings account (HSA). This one is also sometimes called a limited expense (LEX) FSA.
• Dependent care (DCFSA): Helps pay for expenses for a dependent child or other qualifying adult, including daycare, before- and after- school programs, and care for seniors or adults with disabilities who are your dependents.

Which types can you pair?

• You can have an HCFSA and a DCFSA if you use the HCFSA to cover medical expenses and the DCFSA to cover dependent care.
• You can have a LPFSA with a DCFSA if you use the LPFSA for dental and vision expenses and the DCFSA to cover dependent care.
• You cannot have an HCFSA and an LPSFA together, because both accounts cover medical expenses.

Now we will get into the basics of how an FSA operates, exploring eligibility, enrollment, elections, contributions, timeframes, potential tax savings, and more.

Eligibility

Your employer must offer an FSA for you to be eligible. You are not eligible if you are self-employed. However, your spouse might be eligible through their employer, and if so, their FSA can be used for the whole household.

Enrollment

During your employer’s open enrollment period (usually near the end of the year), you can enroll in an FSA. You might qualify for a special enrollment period at other times if you experience a qualifying life event, such as getting married, having a new baby, adding another dependent, moving, changing jobs, and more, etc.

Elections

During open enrollment, you choose how much you want to contribute to your FSA to be used for qualifying medical expenses in the coming year. You can change elections during the next open enrollment. The IRS sets the contribution limits for each year.

Contributions

Once you choose how much you want to contribute (within IRS limits), your employer will then fund the account in one of two ways, depending on the type of FSA you have. By the way, your employer might make contributions to your FSA, as well.

• Front-loading: With an HCFSA and LPFSA, your employer will place your chosen contribution amount in your FSA at the beginning of the year, and you have access to these funds right away. Your employer will then withhold a portion of your pre-tax income with each paycheck to reimburse their front-loading of your account.
• Progressive funding: For a DCFSA, your employer will withhold a portion of your pre-tax income from each paycheck and place that in your FSA. You accrue these funds in your account throughout the year rather than all at once, and you can only use the funds that are already in the account.

Taxes

Your FSA contributions reduce your taxable income. This means you get to put a portion of what would normally be withheld from your paychecks for taxes toward medical or childcare expenses, depending on the type of FSA you have.

Use-it-or-lose-it, grace periods, and carryovers

The following terms explain the limitations on when you can use your FSA dollars and what happens to the funds if you don’t use the full amount.

• Use it or lose it: This means that if you don’t spend the money within the year, you forfeit that amount. However, some HCFSA and LPFSA plans have either a grace period or a carryover. DCFSAs do not feature either of these options.
• Grace periods: For HCFSAs and LPFSAs, some employers allow for a grace period of up to 2.5 months after the plan year’s end for you to spend the remaining dollars in your account.
• Carryovers: Some plans allow for an automatic carryover. This means that funds left in your HCFSA or LPFSA account can be spent at any time in the following year, subject to IRS rules.

Portability

If you leave your job, you cannot take your FSA with you, but you won’t be required to credit back what you’ve already used. The funds are meant to be used within the plan’s year, with exceptions for grace periods and carryovers, as noted above.

If you’ve decided to enroll in an FSA, you might be wondering how much to contribute.

One way to arrive at a ballpark number is to calculate how much you spent on healthcare or dependent care costs throughout the past year. Run through this checklist of qualifying FSA expenses, depending on the type of FSA you’re enrolling in:

• Qualifying medical expenses for HCFSAs:
  • Medical services and treatments as part of your deductible, copay, or coinsurance, including payments for appointments and services with a provider or hospital
  • Prescription medications
  • Over-the-counter items, such as pain relievers, antacids, menstrual care products, etc.
  • Medical equipment and supplies, such as hearing aids, crutches, supplies for diabetes management, blood pressure cuffs, etc.
  • Vision and dental care
  • Miscellaneous medically necessary expenses
• Qualifying medical expenses for LPFSAs:
  • Dental care, including cleanings, X-rays, fillings, crowns, root canals, braces, retainers, dentures, etc.
  • Vision care, including eye exams, prescription lenses and frames, contacts and solutions, and corrective eye surgery
• Qualifying medical expenses for DCFSAs:
  • Childcare for children under 13 (while you work or look for work)
  • Care for other dependents, including adult day care (while you work or look for work)

Remove from your tally any expenses that were unpredictable or unlikely to come into play the following year. Examples include a procedure needed after an injury or a random emergency room visit.

Whatever number you arrived at provides an estimate for how much you might want to contribute for the enrollment year. Still not sure? You can run the same tally for several years in a row and then figure out the average.

You’ve got one more thing to consider regarding whether an FSA might be worth it for you. Just because an item isn't automatically FSA-eligible doesn't mean it's off the table. Many health products and services could qualify when they're medically necessary and supported by proper documentation (like an LMN).

For example, you might be able to purchase a red-light therapy device with your FSA dollars. Such a device might be an eligible expense if you’re using it to address a specific medical condition. If approved by an independent licensed clinician, such conditions might include alopecia or rheumatoid arthritis.

You might need a letter of medical necessity (LMN). An LMN is a formal document from a licensed healthcare provider that explains why a certain product, treatment, or service is necessary to treat, mitigate, or prevent a medical condition.

Certain health products and services may be eligible for qualified customers with an LMN issued by an independent practitioner when the item is used to address a specific medical condition.

Truemed* specializes in helping you maximize your FSA and other health-related benefits (such as an HSA):

• First, you can check whether a product or service is normally considered a qualifying medical expense or whether you might need an LMN.
• Complete a health intake survey that will be reviewed by an independent licensed clinician.
• Buy the item; either pay directly with your HSA/FSA card at checkout, or pay with a regular credit/debit card and seek HSA/FSA reimbursement afterward.
• The independent licensed practitioner will review your medical history, and if you qualify, will issue an LMN. Truemed itself does not make eligibility determinations.
• Truemed also offers support in the event you get a denial of reimbursement and need to provide substantiation documentation.

*Truemed is for qualified customers. HSA/FSA tax savings vary. Learn more at truemed.com/disclosures