Your employer offers a Flexible Spending Account (FSA), but you’re not sure if it’s worth the hassle. Here’s the reality: most people leave money on the table because they don’t understand how these accounts actually work. An FSA lets you set aside pre-tax dollars for medical expenses, which can save you hundreds of dollars annually if you use it strategically.

The U.S. Department of Labor confirms that FSAs are among the most underutilized employee benefits, despite offering substantial tax savings.

Understanding Your FSA Basics

Think of an FSA as a special savings account that reduces your taxable income. For 2025, you can contribute up to $3,300 per year according to IRS guidelines. This money comes out of your paycheck before taxes, so if you’re in the 22% tax bracket, every $100 you contribute saves you $22 in taxes.

The catch? It’s “use it or lose it.” Most plans allow you to carry over $640 to the next year, but anything beyond that disappears. Some employers offer a grace period until March 15th to spend the previous year’s funds.

What Qualifies as FSA Expenses?

The IRS approves thousands of items, including:

• Prescription medications and over-the-counter drugs
• Medical equipment like blood pressure monitors and diabetic supplies
• Dental work, including cleanings and orthodontics
• Vision expenses such as glasses, contacts, and eye exams
• Mental health services and therapy sessions

Strategic Planning for Maximum Savings

Start by reviewing last year’s medical expenses. Add up doctor visits, prescriptions, dental cleanings, and any planned procedures. This gives you a baseline for your FSA contribution.

Consider upcoming needs: Does someone need new glasses? Are dental crowns or root canals likely? Planning a family? Pregnancy and delivery costs are FSA-eligible. Even if your insurance covers most expenses, copays and deductibles add up quickly.

A smart approach is to contribute conservatively your first year. If you typically spend $1,200 annually on medical expenses, start with $1,000 in your FSA. You can always increase it during the next open enrollment.

Common Money-Saving Strategies

Stock up on eligible items before year-end. Many people don’t realize that reading glasses, sunglasses with prescription lenses, and first aid supplies qualify. You can even use FSA funds for acupuncture, chiropractic care, and certain vitamins if prescribed by a doctor.

The IRS Publication 502 provides a complete list of eligible medical expenses, helping you identify overlooked opportunities.

Avoiding Common FSA Pitfalls

Don’t overcontribute based on wishful thinking. If you rarely visit doctors and have excellent health, a large FSA contribution could backfire. Remember, you can’t change your contribution mid-year unless you have a qualifying life event like marriage, divorce, or a new baby.

Keep detailed records and save receipts. While many FSA cards work automatically at pharmacies and medical offices, you might need documentation for reimbursement. Some employers require receipts for all purchases over $25.

Watch your balance throughout the year. Most FSA administrators offer online portals or apps where you can check your remaining funds. Set calendar reminders for September and November to assess your spending and plan any necessary purchases.

Year-End Spending Tips

If December arrives and you have leftover funds, consider these strategies:

• Schedule routine medical appointments like physicals or dental cleanings
• Purchase a year’s supply of contact lenses or prescription medications
• Buy eligible medical supplies like thermometers, heating pads, or compression socks
• Get prescription sunglasses or backup eyeglasses

Making Your FSA Work for You

The FSA Store offers thousands of eligible products with guaranteed FSA acceptance, making year-end shopping easier. Many major pharmacy chains like CVS and Walgreens also clearly mark FSA-eligible items throughout their stores.

An FSA isn’t right for everyone, but for families with predictable medical expenses, it’s essentially free money. Even saving $200 in taxes annually adds up to significant savings over time. The key is realistic planning and understanding what qualifies.

Take time during your next open enrollment to calculate potential savings. Your future self will appreciate the extra money in your pocket instead of going to taxes.