Flexible Spending Arrangements (FSAs): Health Accounts and Taxes (2025 IRS Guide)

This guide covers “Flexible Spending Arrangements (FSAs)” within health accounts and taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Flexible Spending Arrangements (FSAs)

A health FSA allows employees to be reimbursed for medical expenses. FSAs are usually funded through voluntary salary reduction agreements with your employer. The employer may also contribute.

For information on the interaction between a health FSA and an HSA, see Other employee health plans under Qualifying for an HSA, earlier.

What are the benefits of an FSA?

You may enjoy several benefits from having an FSA.

• Contributions made by your employer can be excluded from your gross income.

• No employment or federal income taxes are deducted from the contributions.

• Reimbursements may be tax free if you pay qualified medical expenses.

• You can use an FSA to pay qualified medical expenses even if funds have not yet been credited to the arrangement.

Qualifying for an FSA

Health FSAs are employer-established benefit plans. These may be offered in conjunction with other employer-provided benefits as part of a cafeteria plan. Employers have flexibility to offer various combinations of benefits in designing their plans.

Self-employed persons aren’t eligible for FSAs.

Caution:

Certain limitations may apply if you are a highly compensated participant or a key employee.

Contributions to an FSA

You contribute to your FSA by electing an amount to be voluntarily withheld from your pay by your employer. This is sometimes called a “salary reduction agreement.” The employer may also contribute to your FSA if specified in the plan.

You don’t pay federal income tax or employment taxes on the salary you contribute or the amounts your employer contributes to the FSA. However, contributions made by your employer to provide coverage for long-term care must be included in income.

When To Contribute

At the beginning of the plan year, you must designate how much you want to contribute. Then your employer will deduct amounts periodically (generally, every payday) in accordance with your annual election. You can change or revoke your election only if specifically allowed by law and the plan.

Amount of Contribution

For tax years beginning in 2025, the dollar limitation under Code section 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $3,300. If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $660. (See Revenue Procedure 2024–40.)

Distributions From an FSA

Generally, distributions from a health FSA must be paid only to reimburse you for qualified medical expenses you incurred during the period of coverage. You must be able to receive the maximum amount of reimbursement (the amount you have elected to contribute for the year) at any time during the coverage period, regardless of the amount you have actually contributed. The maximum amount you can receive tax free is the total amount you elected to contribute to the health FSA for the year.

You must provide the health FSA with a written statement from an independent third party stating that the medical expense has been incurred and the amount of the expense. You must also provide a written statement that the expense hasn’t been paid or reimbursed under any other health plan coverage. The FSA can’t make advance reimbursements of future or projected expenses.

Debit cards, credit cards, and stored value cards given to you by your employer can be used to reimburse participants in a health FSA. If the use of these cards meets certain substantiation methods, you may not have to provide additional information to the health FSA. For information on these methods, see Revenue Ruling 2003-43, 2003-21 I.R.B. 935, available at IRS.gov/pub/irs-drop/rr-03-43.pdf; Notice 2006-69, 2006-31 I.R.B. 107, available at IRS.gov/irb/2006-31_IRB/ar10.html; and Notice 2007-2, 2007-2 I.R.B. 254, available at IRS.gov/irb/2007-02_IRB/ar09.html.

Qualified medical expenses.

Qualified medical expenses are those specified in the plan that would generally qualify for the medical and dental expenses deduction.

Expenses incurred for over-the-counter medicine (whether or not prescribed) and menstrual care products are considered medical care and are considered a covered expense.

Qualified medical expenses include those incurred by the following persons.

1. You and your spouse.

2. All dependents you claim on your tax return.

3. Any person you could have claimed as a dependent on your return except that:

   1. The person filed a joint return;

   2. The person had gross income equal to or more than the exemption amount; or

   3. You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2025 return.

4. Your child under age 27 at the end of your tax year.

You can’t receive distributions from your FSA for the following expenses.

• Amounts paid for health insurance premiums.

• Amounts paid for long-term care.

• Amounts that are covered under another health plan.

If you are covered under both a health FSA and an HRA, see Notice 2002-45, Part V, 2002-28 I.R.B. 93, available at IRS.gov/pub/irs-drop/n-02-45.pdf.

Caution:

You can’t deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the reimbursement you receive from the FSA.

Qualified reservist distribution.

A special rule allows amounts in a health FSA to be distributed to reservists ordered or called to active duty. This rule applies to distributions made after June 17, 2008, if the plan has been amended to allow these distributions. Your employer must report the distribution as wages on your Form W-2 for the year in which the distribution is made. The distribution is subject to employment taxes and is included in your gross income.

A qualified reservist distribution is allowed if you were (because you were in the reserves) ordered or called to active duty for a period of more than 179 days or for an indefinite period, and the distribution is made during the period beginning on the date of the order or call and ending on the last date that reimbursements could otherwise be made for the plan year that includes the date of the order or call.

Balance in an FSA

FSAs are generally “use-it-or-lose-it” plans. This means that amounts in the account at the end of the plan year can’t generally be carried over to the next year. However, the plan can provide for either a grace period or a carryover.

The plan can provide for a grace period of up to 2 1/2 months after the end of the plan year. If there is a grace period, any qualified medical expenses incurred in that period can be paid from any amounts left in the account at the end of the previous year. Your employer isn’t permitted to refund any part of the balance to you.

Plans may allow up to $660 of unused amounts remaining at the end of the plan year to be paid or reimbursed for qualified medical expenses you incur in the following plan year. The plan may specify a lower dollar amount as the maximum carryover amount. If the plan permits a carryover, any unused amounts in excess of the carryover amount are forfeited. The carryover doesn’t affect the maximum amount of salary reduction contributions that you are permitted to make.

A plan adopting a carryover provision is not permitted to also provide a grace period with respect to health FSAs. (See Notice 2013–71.)

Employer Participation

For the health FSA to maintain tax-qualified status, employers must comply with certain requirements that apply to cafeteria plans. For example, there are restrictions for plans that cover highly compensated employees and key employees. The plans must also comply with rules applicable to other accident and health plans. Pub. 15-B, Employer’s Tax Guide to Fringe Benefits, explains these requirements.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans: Flexible Spending Arrangements (FSAs) — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.