how a flexible spending account fsa works
one of the key benefits of a flexible spending account is that the funds contributed to the account are deducted from your earnings before taxes lowering your taxable income as a result regular contributions to an fsa can reduce your annual tax liability 3the irs limits how much can be contributed to an fsa each year for medical expense fsa accounts the annual contribution limit is 3 200 for 2024 4if you are married your spouse also can put aside up to the annual contribution limit through their employer employers can choose to contribute to an fsa but they don t have to if they do their contribution doesn t reduce the amount that you are permitted to contribute you aren t taxed on employer contributions for 2024 the contribution limit for a dependent care fsa is 5 000 for joint and individual tax returns and 2 500 for married taxpayers filing separately 5the irs in 2021 released guidance that allowed employers more flexibility for benefit plans during the covid 19 crisis including special provisions for health flexible spending arrangements fsas most of these provisions ended at the beginning of 2023 except for some carryover periods for leftover funds that extend into the first months of the year 6pros and cons of flexible spending accounts fsas besides their tax benefits fsas offer several advantages for account holders but they don t cover all manner of medical or dental expenses here are some of their pros and cons reimburse medical care paymentspay spouses and dependents qualified medical expensescover many medical equipment purchasesreimburse amounts paid for insurance plan deductiblessome procedures or health related expenses aren t coveredfunds have a use it or lose it provisioncan t be used to pay for insurance premiumsthe coronavirus aid relief and economic security cares act enacted in 2020 expanded reimbursable qualified medical expenses for 2020 and later years to include the cost of over the counter drugs without a doctor s prescription the act also permitted the use of fsa funds to reimburse the costs of menstrual care products both these cares provisions are permanent 9taxpayers in september 2021 were notified by the irs that at home covid 19 tests and personal protective equipment such as face masks and hand sanitizer were considered eligible medical expenses that can be paid for or reimbursed by fsas health savings accounts hsas and health reimbursement arrangements hras 12special considerations