As open enrollment season for benefits approaches, the IRS is reminding taxpayers about an important opportunity to save on healthcare expenses through a Flexible Spending Arrangement (FSA). If your employer offers an FSA, you can contribute up to $3,300 in 2025 to cover out-of-pocket medical expenses—tax-free!
Here’s everything you need to know to take full advantage of your FSA and maximize your savings in 2025.
What Is a Healthcare FSA and How Does It Work?
A Healthcare Flexible Spending Arrangement (FSA) is an employer-sponsored benefit that allows you to set aside pre-tax dollars to pay for eligible medical expenses. The best part? The money you contribute to an FSA is not subject to federal income tax, Social Security tax, or Medicare tax, meaning you save money on your taxes while covering eligible healthcare costs.
In 2025, you can contribute up to $3,300 to your FSA. If you’re married, and your spouse has an FSA through their employer, your combined household contribution could be as much as $6,600.
Don’t Forget: You Must Elect Your Contribution Every Year
The IRS wants to remind taxpayers that you need to elect your FSA contribution every year during your company’s open enrollment period. Your contribution does not automatically carry over from one year to the next, so if you want to continue to use your FSA for medical expenses in 2025, you must sign up for it during open enrollment.
Be sure to check with your HR department to understand the specific enrollment deadlines and any other details about the plan your employer offers.
Unused FSA Funds: The Carryover Rule
One common concern about FSAs is the "use-it-or-lose-it" rule, meaning that any money left in the account at the end of the year might be forfeited. However, some plans allow employees to carry over a portion of their unused funds into the next year.
For 2025, the carryover limit increases to $660 (up from $640 in 2024), meaning if you don’t use all your FSA funds by the end of the year, you can roll over up to $660 into the next year.
Remember, the carryover doesn’t affect the maximum contribution of $3,300, so you can still contribute that full amount in 2025, even if you have carryover funds.
What Can You Use Your FSA For?
An FSA can cover a wide range of medical expenses not paid for by your regular health insurance. Here’s a list of some of the most common items you can use your FSA for:
Co-pays for doctor visits
Prescription medications
Dental care, including cleanings, fillings, and braces
Vision care, including eyeglasses, contacts, and eye exams
Hearing aids and batteries
Over-the-counter medications like pain relievers, allergy treatments, and cold medications
Medical supplies such as thermometers, bandages, and first aid kits
In short, if it's a healthcare-related expense, there's a good chance it can be covered by your FSA. However, not every item is eligible, so be sure to check with your employer’s FSA plan for a full list of qualified expenses.
How to Plan for Your 2025 FSA Contributions
Before you decide how much to contribute to your FSA for 2025, it’s important to think about your expected medical costs for the year. Consider the following:
Routine medical care: Do you have regular doctor visits, medications, or treatments you’ll need to pay for out of pocket?
Big-ticket expenses: Are you planning for a surgery or a procedure that will have a high co-pay or deductible?
Seasonal needs: If you suffer from allergies, you might need to stock up on over-the-counter remedies like antihistamines or nasal sprays. Or perhaps you’ll need sunscreen or cold weather items like steam vaporizers.
Dental and vision care: Many FSA plans cover eye exams, prescription glasses, dental cleanings, and orthodontics, which aren’t always fully covered by insurance.
By taking the time to estimate your healthcare needs for the year, you can choose a contribution amount that maximizes your FSA dollars without over-contributing. Remember, while you can carry over up to $660 in unused funds, you’ll want to try to spend your FSA money wisely to avoid losing any unused balances.
Key Things to Keep in Mind
Self-employed individuals are not eligible for an FSA.
Your employer is not required to offer an FSA, so check with your HR department to see if this benefit is available to you.
FSAs are subject to specific rules and restrictions, including what expenses are eligible and the maximum contribution limits.
Contributions to an FSA are deducted from your paycheck on a pre-tax basis, meaning the money comes out before income taxes are applied, which helps reduce your taxable income.
Maximize Your Healthcare Savings in 2025
FSAs are an excellent way to save money on healthcare costs by using pre-tax dollars. With the contribution limit increasing to $3,300 for 2025, you have a valuable opportunity to cover medical expenses without paying taxes on the money you contribute.
Just remember, you must elect your contribution amount during open enrollment, and you’ll need to plan ahead for healthcare costs throughout the year to get the most out of your FSA.
If you're unsure about your employer's FSA options or how to estimate your medical expenses, don’t hesitate to reach out to your HR department for more details. And always check IRS guidelines to ensure you're on the right track.
With a little planning, you can make the most of your FSA and enjoy tax-free savings for your medical needs in 2025!
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