Flexible Spending Account Contribution Limits – How Much to Put in Your FSA?

Do you know how much you should contribute to your FSA each year? Here are some tips to determine your flexible spending account contributions.
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flexible spending account contribution limits

Fall is the perfect time to start thinking about your Flexible Spending Account.

Open enrollment in these plans generally takes place in late fall. You’ll need to do a little planning and research ahead of time.

Here is what you need to know in order to make the best use of your Flexible Spending Account (FSA).

What Is a Flexible Spending Account?

If you have never enrolled in one of these accounts, you may be missing out on some major savings.

A Healthcare Flexible Spending Account allows you to set aside pre-tax dollars from your paycheck to use for qualifying out-of-pocket medical expenses, while a Dependent Care FSA allows you to set aside money for expenses like daycare for children under age 13 and care for elderly adults or dependents who have disabilities. 

You’ll need to carefully estimate how much money you think you’ll need for these expenses, as FSAs are use-it-or-lose-it plans. While some FSAs do offer a grace period, giving you extra time to use any funds still left over at the end of the year, seriously over- or underestimating your needs year can be costly.

Flexible Spending Account Limits

Here are the FSA Limits for Health FSAs and Dependent Care FSAs.

YearHealth FSADependent FSA (Married Filing Separately)Dependent FSA (Individuals or Married Filing Jointly)
2023$3,050$2,500$5,000
2022$2,850$2,500$5,000
2021$2,750$2,500$5,000
2020$2,750$2,500$5,000
2019$2,700$2,500$5,000
2018$2,650$2,500$5,000
2017$2,600$2,500$5,000
2016$2,550$2,500$5,000

Estimating Health Care Expenses

Several websites, such as Kiplinger’s and WageWorks, offer calculators to help you determine how much money you should put away in your FSA.

You will need to gather some information to help you get a clear view of next year’s needs.

That information includes:

  1. Last year’s FSA receipts if you still have them
  2. A list of your regular prescriptions
  3. Annual deductibles for your medical, vision and dental insurance
  4. The number of times each family member visited a health care provider this year – don’t forget visits to the eye doctor and dentist! You can get a report from your insurance provider of how many medical claims each family member had last year.
  5. Any plans for future surgeries or procedures, including dental procedures.
  6. Additional qualifying expenses, such as glasses or contacts, blood pressure monitor and flu shots.

See Your Doctor

If you suspect you may need some costly procedures in the next year, or you haven’t seen your health care providers recently, it makes sense to schedule an appointment with your doctor and dentist before the open enrollment period for your FSA.

Your doctor can help you determine if you’ll need any special or elective care in the coming year, and you can budget the expense into your FSA plan.

Eligible Expenses

IRS Publication 502 lists the medical and dental expenses your Flexible Spending Account can cover.

These include:

  • Medical and dental copayments and deductibles
  • Prescription medications and over-the-counter medications with a doctor’s prescription
  • Medical equipment such as a blood pressure monitor or crutches
  • Vision care, such as an eye exam and glasses or contacts
  • Hearing aids and batteries
  • Dental treatment, including braces and dentures

Dependent Care FSA

Daycare costs are predictable, so calculating how much to put aside for dependent care may be more straightforward.

However, you need to determine whether you should use your Dependent Care FSA or the child and dependent tax credit, as you cannot double-dip. You may be able to use both, but you will need to deduct the amount of your Dependent Care FSA from the tax credit that applies to you, according to the IRS.

Speak to your accountant or financial advisor about your particular situation to determine what is best for you. 

Parents in higher tax brackets may benefit from maxing out their FSA before using the tax credit to gain greater tax savings – $1,200 on federal taxes if you contribute the maximum and are in the 24% federal tax bracket, versus only $600 if you’re in the 12% tax bracket. Remember, the child and dependent tax credit gets smaller as your income increases.

Lower-income parents may also benefit more from the FSA. This is because – except for in 2021, when the American Rescue Plan Act temporarily expanded the tax credit – the tax credit is nonrefundable. It will reduce your taxes, but it won’t give you a bigger refund.

When estimating your child care expenses for the year, don’t forget to include summer camp and after-school care. An FSA can also cover those costs.

Comparing a Flexible Spending Account to a Health Savings Account

Individual and group health insurance policyholders may be able to choose between a high-deductible health plan with a Health Savings Account or signing up for a Flexible Spending Arrangement. 

Both will help you save money for your health care needs. But which is best?

Examining Health Savings Accounts

A Health Savings Account is a savings account for people who are enrolled in a high-deductible health plan. High-deductible health plans have a higher out-of-pocket deductible, but the policies generally cost less per month. You can compare health insurance quotes for high-deductible plans and regular plans to see which is right for your situation.

You contribute to an HSA with pre-tax dollars, giving you a tax incentive to save for your health care needs. A major advantage to using an HSA is that the money carries over from year to year, so you won’t lose it if you don’t use it. You can even invest the money in your HSA, allowing you to grow your savings over time.

Pros of Health Savings Accounts

  • You contribute to your HSA with pre-tax dollars.
  • Funds carry over from year to year.
  • You can invest HSA funds. Your HSA is similar to an IRA; any financial institution that can handle an IRA can manage your HSA.
  • You can make withdrawals from your plan, but you’ll have to pay taxes and a penalty.

Cons of Health Savings Accounts

  • You must have a high-deductible health plan to qualify.
  • Some HSA accounts have high annual fees. Be sure to look for low- or no-fee HSAs.

Examining Flexible Spending Accounts

A Flexible Spending Account is a savings account your employer sets up for you to use for medical and dental bills or dependent care. Your employer takes money out of your paycheck and deposits it to your account before taking out payroll taxes. You won’t be charged monthly or yearly maintenance fees, and you’re not charged to use the account.

However, FSA’s don’t roll over each year, so you need to figure out how much you’ll need. You’ll lose whatever remains in your account at the end of the year.

Pros of Flexible Spending Accounts

  • You contribute to your FSA with pre-tax dollars.
  • You have total control over how you spend your money, as long as it is health care or dependent care related (depending on which type of account you open).
  • You can use an FSA with all types of health care plans, not only with high-deductible plans.
  • You can use your Health Care FSA to pay for optional medical procedures that are not covered by insurance, such as LASIK eye surgery, nonelective cosmetic surgery, braces, etc.
  • You can use a Dependent Care FSA for child care or dependent care costs.

Cons of Flexible Spending Accounts

  • Money must be used by the end of the plan year, or you lose it.
  • You cannot make withdrawals from your plan.

Comparing HSA and FSA

Here’s how Flexible Spending Accounts compare to Health Savings Accounts.

Use it or lose it: FSAs’ use-it-or-lose-it policy does not allow you to carry money forward from year to year. If you have low annual expenses, an HSA may be a better option.

Qualifying for the plan: You can use an FSA even if you don’t have health insurance. This isn’t the case with the HSA. But, you must have a high-deductible health plan to have the account.

Covered expenses: One last difference is the expenses that each plan covers. HSAs are for medical expenses only. The FSA is good for both medical and child care expenses.

Not Sure Which Is Best for You? Use Both

In certain situations, you may be eligible for both and FSA and an HSA account. If your plan is a limited-purpose (typically limited to vision and dental expenses) or post-deductible health FSA (which pays for medical expenses only after you meet the deductible), you may qualify for an HSA as well, according to the IRS..

Compare each plan and examine account fees and restrictions before opening an account. If you decide to use both plans, exhaust your FSA funds first, or you’ll lose them. If you don’t currently use one of these plans, check with your employer during the next health insurance open enrollment season to see if one of them will save you money on your health care costs. Self-employed insurance plan participants can also use these plans.


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About Emily Guy Birken

Emily Guy Birken Plutus Award-winning freelance writer in the financial sphere. Her varied career combined with her background in education helps her make complex financial topics relatable. She's also the co-author of Stacked and featured on the Stacking Benjamins podcast.

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  1. Kevin @ Ask For Benefits says

    People consistently under utilize FSA’s. One of the reasons is that they don’t understand how much they are saving: they overlook the FICA and state income tax savings and do the math wrong.

    Using an FSA eliminates state, federal, and FICA taxes – except in NJ. The rates employee pay is 5.65%, but most articles (including this one) do not mention this savings. Often people in mid range tax brackets save the most, as the FICA contribution drops to 1.45% once income exceeds a $110,100 (2012 limit).

    People do the math wrong on potential savings. Take this example. An employee saving 25% federal, 5.65% FICA, and 2% state taxes often add the savings to 32.65% and might multiply that by their contribution of $2,000 to estimate a savings of $641.30.

    What most people fail to see is the amount of after tax dollars they must earn to get the $2,000. The proper method is to divide the contribution amount by the savings percent to get the amount of gross income they must earn to yield the contribution amount they are spending anyway.

    $2,000/(1-32.65% )= $2,969

    In this example the employee would have to earn an additional $969 to have $2,000 to spend on these medical items. Employees seem to focus on the possibility of leaving $500 on the table, rather than the real savings.

    • Mike says

      Kevin, I didn’t realize that was the case in NJ. Does the employer save on FICA in NJ or is it excluded for everyone?

      Good points with calculating the amounts. I’m going to borrow this.
      Thanks!

      • Kevin @ Savvy on Credit says

        NJ does not recognize any pre taxing for calculating state income tax. Check any W2 form and you will find that the NJ income is almost always higher. The difference is usually the pre tax amount deductions not recognized.

        Employers in NJ save the same on FICA as in any other state – as FICA is a federal program. The NJ exception applies to state taxation only.

  2. Roger @ The Chicago Financial Planner says

    Good post, I recall doing this many times over the years. Time well-spent as this is an excellent benefit. We went to an HSA and high deductible account this year, will need to evaluate our spending to see if this was a good move or not during open enrollment for my wife’s employer this Fall.

  3. Jim Hayes says

    Great post!

    For dependent care accounts remember that only summer day camp may be reimbursed, overnight camp is not eligible.

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