When it comes to employee benefits, few are as practical—and as underused—as the Flexible Spending Account (FSA). FSAs let you pay for everyday healthcare and childcare costs with pre-tax dollars, reducing your taxable income and helping you keep more of what you earn. For many households, they’re one of the simplest ways to save on expenses you’re already paying for.
How FSAs Work
An FSA is an employer-sponsored account that allows employees to set aside money from each paycheck before taxes are applied. Those funds can then be used for qualified expenses such as doctor visits, dental care, vision care, prescriptions, or dependent-care services like daycare and after-school programs.
Because contributions avoid both federal income and payroll taxes, you can save up to 30% on eligible costs depending on your tax bracket. Employers benefit, too, by paying less in payroll taxes on those same dollars.
Key Types of FSAs
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Healthcare FSA – Covers medical, dental, and vision expenses not reimbursed by insurance. For 2025, the annual contribution limit is $3,300, increasing to $3,400 in 2026. Some plans also allow a small rollover ($650 in 2025, $660 in 2026) or a 2½-month grace period to use leftover funds.
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Limited-Purpose FSA – Restricted to dental and vision care, allowing participants who also have a Health Savings Account (HSA) to remain eligible for both.
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Dependent Care FSA (DC-FSA) – Designed to cover childcare or dependent-care costs, with a limit of $5,000 per household or $2,500 if married filing separately.
Strategic Planning Matters
Unlike HSAs, FSAs follow a “use-it-or-lose-it” rule, meaning any unused funds may be forfeited at year-end. That’s why estimating your annual expenses carefully is critical. If your plan includes a rollover or grace period, you can contribute a bit more confidently, knowing you’ll have extra time to spend it.
Used thoughtfully, FSAs can convert routine expenses into real tax savings. For families balancing healthcare, dental, and childcare costs, every dollar saved on taxes adds up to meaningful financial flexibility.
At Liberty One Wealth Advisors, we help clients integrate employer benefits like FSAs into their broader financial plan—ensuring smart tax savings today support long-term financial wellness tomorrow.
