If you participate in an employer-sponsored flexible spending account (FSA) for health or dependent care expenses, now is the time to review your remaining balance. FSAs offer valuable tax savings — but most require you to use your funds by the end of the year or lose them. Here’s a quick refresher on the rules and 2025 limits.
Health Care FSAs: What You Need to Know
Contribution Limits for 2025
For 2025, you can contribute up to $3,300 in pretax dollars to a health care FSA. This amount adjusts annually for inflation and is scheduled to increase to $3,400 in 2026. These contributions can be used to cover medical expenses that aren’t reimbursed by insurance.
Why FSAs Offer Tax Advantages
Health FSAs let you use pretax dollars for medical costs without needing to claim an itemized medical deduction. This is beneficial because medical expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income, a threshold many taxpayers never reach.
Additionally, FSA contributions aren’t subject to Social Security or Medicare taxes, providing even more savings.
The Use-It-or-Lose-It Rule
Most plans require you to incur eligible expenses by the end of the plan year (December 31 for calendar-year plans). However, some plans allow:
- A grace period extending up to March 15, 2026, or
- A rollover of up to $660 into 2026 (increasing to $680 for 2026–2027).
Check your plan’s specific rules to understand which option applies.
Smart Ways to Use Remaining Funds
Review your total FSA usage now to determine how much you still need to spend. Eligible expenses may include:
- Elective medical procedures
- Dental cleanings or treatments
- New eyeglasses or contacts
- Over-the-counter medications
- Health-related supplies
Dependent Care FSAs: Important Highlights
Contribution Limits for 2025
If your employer offers a dependent care FSA, you may set aside up to $5,000 per year (or $2,500 if married filing separately) on a pretax basis. These limits aren’t inflation-adjusted, but under the One Big Beautiful Bill Act, the cap will rise to $7,500 in 2026.
Eligible Dependent Care Costs
Dependent care FSA funds can be used for expenses related to:
- A qualifying dependent child under age 13
- A spouse or dependent who lives with you more than half the year and is physically or mentally incapable of self-care
Use-It-or-Lose-It Applies Here Too
Like health FSAs, dependent care FSAs follow the use-it-or-lose-it rule and may offer a grace period. However, rollovers are never allowed. It’s wise to review your dependent care spending now so you don’t forfeit funds.
Final Steps as 2025 Comes to a Close
Before year-end, take time to review your FSA balances and your plan’s rules regarding grace periods or rollovers. Then make any necessary appointments or purchases to ensure you maximize your benefits.
If you have questions about your plan, reach out to your HR department. For tax-related guidance or help with year-end planning, feel free to contact us.
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