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

Some links below are from our sponsors. Here’s how we make money.

Advertiser Disclosure: Opinions, reviews, analyses & recommendations are the author’s alone. This article may contain links from our advertisers. For more information, please see our Advertising Policy.

Flexible Spending Account Contributions
Do you know how much you should contribute to your FSA each year? Here are some tips to determine your flexible spending account contributions.

As we head into fall, now is the perfect time to start thinking about your Flexible Spending Account.

Open enrollment in these accounts are generally held in the late fall, and in order to make the best use of them, 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?

Flexible Spending Account ContributionsIf 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 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 disabled dependents.

The tricky aspect to FSAs is that they are a use-it-or-lose-it plan, which means you need to carefully estimate how much money you think you’ll need for these expenses over the year.

FSAs typically allow a grace period for you to use any funds still left over at the end of the year, but seriously over- or underestimating your needs for the 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)

Estimating 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.

In order to take full advantage of these calculators, you will need to gather some information to really 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. An estimate of the number of times each member of the family visited the doctor this year. You can actually get a report from your insurance provider on how many medical claims each family member had last year.
  4. Any plans for future surgeries or procedures.

If you are mathematically inclined, you can further estimate the best use of your money by using a tool put together by The Finance Buff, who theorizes that “there has to be a point where losing a little pre-tax money in the FSA is less expensive than paying a lot with after-tax money.”

The spreadsheet he provides can help those who are watching every single penny maximize their money (using some of the math you might have forgotten since high school.)

See Your Doctor

If you suspect that you may need some costly procedures in the next year—or if you simply have not been to see your healthcare providers recently—it makes sense to schedule an appointment with your doctor and dentist prior to 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 of it into your FSA plan.

Dependent Care FSA

Figuring out how much to put aside for dependent care tends to be a much easier proposition than doing the same for healthcare expenses since daycare costs are predictable.

However, it can be confusing determining whether you should use your Dependent Care FSA or take the childcare tax credit, as you cannot do both.

A general rule of thumb is that parents in higher tax brackets will benefit more from an FSA over the tax credit.

As the website Babycenter points out, “the more you earn, the more you’ll benefit from an FSA, particularly if you’re at or above the 25 percent federal tax bracket.

Taxpayers in the 15 percent federal tax bracket who have only one child and have qualified expenses of at least $3,000 may be best off with the FSA, too.”

Knowing your tax bracket will help you decide whether or not to use the Dependent Care FSA.

When estimating your childcare expenses for the year, don’t forget to include summer camp and after-school care, as those costs can also be covered by an FSA.

Related Post: Guide to Buying Individual and Family Health Insurance

Comparing a Flexible Spending Account to a Health Savings Account

Whether you have individual or group health insurance, chances are good that you can choose from a high deductible health plan with a Health Savings Account or sign up for a Flexible Spending Account. Both of these accounts are great ways to save money for your health care needs. But which is best?

Examining Health Savings Accounts

hsa vs FSA comparisonA health savings account is a savings account set up for people who are enrolled in a high deductible health plan. High deductible health plans require 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 if they are right for your situation.

Contributions to an HSA are made with pre-tax dollars, giving you a nice tax incentive to save for your health care needs. A major advantage to using a health savings account is the money carries over from year to year, so you don’t have to worry about the use it or lose it policy. You can even invest the money in your HSA, allowing you to grow your savings over the decades.

Pros and cons of Health Savings Accounts:

  • Pro: Pre-tax contributions.
  • Pro: Funds carry over from year to year.
  • Pro: HSA funds can be invested. Your HSA is similar to an IRA; any financial institution that can handle an IRA can manage your HSA.
  • Pro: Ability to purchase over the counter medications, but that will expire in early 2011.
  • Con: Must have a high deductible health plan to qualify.
  • Con: 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 set up by your employer for you to use for medical and dental bills or dependent care. Money is taken out of your paycheck and deposited to your account before payroll taxes are deducted. You won’t be charged monthly or yearly maintenance fees and you’re not charged to use the account.

You can determine how much money will be in the account throughout the year. You’ll need to try and figure out how much you’re going to need because whatever is left in your account at the end of the year will go away.

Which expenses are covered? A Flexible Spending Account will cover any medical expense considered deductible by the IRS. You can find a list on IRS Publication 502.

Pros and cons of  Flexible Spending Accounts:

  • Pro: Pre-tax contributions.
  • Pro: You have total control over how you spend your money; so long as it is health care or dependent care related (depending on which type of account you open).
  • Pro: Can use an FSA with all types of health care plans, not only high deductible plans.
  • Pro: Can be used for “optional”medical procedures not covered by insurance, such as LASIK eye surgery, non-elective cosmetic surgery, braces, etc.
  • Pro: Can be used for childcare or dependent care.
  • Con: Money must be used by the end of the plan year, or you lose it.

Comparing HSA and FSA

Now let’s compare a flexible spending account to a health savings account to see how they match up.

Use it or lose it: A flexible spending account has a use it or lose it policy which is not good when you need the money from year to year, so a health savings account would be better if you have low annual expenses.

Qualifying for the plan: Even if you don’t have health insurance, you can still use a flexible spending account. This isn’t the case with the health spending account. You must have a high deductible health plan to have the account.

Which expenses are covered? One last difference is the expenses that are included. The health spending account is for medical expenses only. The flexible spending account is good for both medical and child-care expenses.

Not sure which is best for you? Use both

Comparing a Flexible Spending Account to a Health Savings Account
Choosing the right plan can save you thousands of dollars each year!

You may be able to use both plans if you qualify for them. According to the US Treasury information page, “You can have both types of accounts, but only under certain circumstances.  General Flexible Spending Arrangements (FSAs) will probably make you ineligible for an HSA.  If your employer offers a “limited purpose” (limited to dental, vision or preventive care) or “post-deductible” (pay for medical expenses after the plan deductible is met) FSA, then you can still be eligible for an HSA. ”

If you use both plans, be sure to use all the funds you set aside in your FSA each year, or you lose them. Be sure to compare each plan and examine account fees and restrictions before opening an account. Otherwise, you may be paying too much for a service you could get free elsewhere.

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 you can save money on your health care costs with one of these plans. You can also use these plans if you have a self-employed insurance plan.

The Bottom Line

If you’ve been avoiding enrolling in an FSA because you are nervous about the use-or-lose-it rule, now is a perfect time to try it.

With a little research and planning, your FSA can save you money and headaches in 2019.

Get Instant Access
FREE Weekly Updates! Enter your information to join our mailing list.

Posted In:

About Emily Guy Birken

Emily Guy Birken is a freelance writer and mother who loves to share tips on managing the family budget and other personal finance tips. You can find her musings on parenting and life at The SAHMnambulist.

Reader Interactions


    Leave A Comment:


    About the comments on this site:

    These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

  1. Jim Hayes says

    Great post!

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

  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. 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.

      • 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.

Disclaimer: The content on this site is for informational and entertainment purposes only and is not professional financial advice. References to third party products, rates, and offers may change without notice. Please visit the referenced site for current information. We may receive compensation through affiliate or advertising relationships from products mentioned on this site. However, we do not accept compensation for positive reviews; all reviews on this site represent the opinions of the author. Privacy Policy

Editorial Disclosure: This content is not provided or commissioned by the bank advertiser. Opinions expressed here are author’s alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program.