Certain IRS rules apply to flexible spending accounts. FSA plans are designed as “use it or lose it” benefits, so you want to make sure to carefully estimate expenses for you and your eligible dependents.
In 2025, you may carry over at least $30 and up to $640 of your health care FSA balance. You cannot carry over your dependent care balance. You have until April 30 of the following year to request reimbursement for expenses you incurred during the previous calendar year.
Flexible spending accounts are also subject to annual IRS discrimination testing to ensure plan benefits are reasonable and applied fairly and consistently so that eligibility is not limited to, or weighted in favor of, key or highly compensated employees.
Results of the discrimination testing may require that contributions by highly compensated employees be reduced or stopped. You will be notified during the plan year of any necessary adjustment to your contribution amount resulting from the required discrimination testing.
Pre-Tax Contributions
Flexible spending accounts let you use before-tax dollars to pay for eligible expenses. This means that you are paying for expenses with money that is taken from your pay before Social Security taxes and federal, state, and local (where applicable) income taxes are deducted. Contributing money before taxes are taken out reduces your gross salary. This lowers your taxable income and, therefore, lowers the amount of income tax you pay.
The money you contribute to your FSA is not subject to Social Security taxes. Because you will pay less Social Security tax, your future Social Security benefit may be smaller than it would be if you did not participate in the FSA. If your pay exceeds the Social Security wage base, your future Social Security benefits may not be affected by contributing pre-tax dollars.
If you have questions about the tax implications of participating in an FSA, you should consult a tax adviser.