A flexible spending account (FSA) lets employees set aside pre-tax dollars to pay for qualified expenses. This lowers taxable wages and provides tax savings for both employees and employers. FSAs are offered under §125 cafeteria plans and must be elected each plan year.
Types of FSAs
FSA Type | Eligible Expenses |
Medical FSA | Copays, deductibles, prescriptions, dental and vision costs, medical devices, and similar healthcare expenses |
Dependent Care FSA | Daycare, preschool, after-school programs (children under 13), in-home care, or adult day care for dependents unable to self-care |
Contribution limits and rollover (2025)
FSA Type | Annual Limit | Rollover Option |
Medical FSA | $3,300 | Up to $660 may roll over to the next plan year |
Dependent Care FSA | $5,000 per household | Not eligible for rollover |
Unused funds generally expire at year-end unless the plan allows rollover or a 2.5-month grace period.
Tax treatment
Employee contributions are pre-tax, reducing FIT, Social Security, and Medicare.
Employer contributions, if offered, are also excluded from taxable wages.
State treatment may vary.
Dependent Care FSA contributions are reported in Box 10 of Form W-2.
Key rules
Elections must be made for the full plan year.
FSAs are “use-it-or-lose-it” unless a rollover or grace period is included.
Medical FSAs must make the full elected amount available immediately.
Dependent Care FSAs only reimburse up to the amount contributed.
FSAs do not allow catch-up contributions for older employees.
Need help?
If you have questions or need assistance, please contact Salaris Payroll Support. We’re here to help.