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Flexible spending accounts (FSA)

Learn how to manage flexible spending accounts (FSAs) for pre-tax savings on qualified expenses.

Overview

This article explains flexible spending accounts (FSAs)—a Section 125 benefit—and shows how to manage them in OnTheClock.

What is a flexible spending account?

An FSA lets Employees set aside pre-tax dollars for qualified expenses, lowering taxable wages.

FSA type
Eligible expenses
Medical FSA
Copays, deductibles, prescriptions, dental and vision costs, medical devices, and more
Dependent care FSA
Daycare, preschool, after-school programs (children < 13) and in-home or adult-day-care services for a dependent who cannot self-care

Taxation and reporting

Tax
Taxable
Exempt
Federal income tax
  
✓
Social Security (FICA)
  
✓
Medicare
  
✓
Federal unemployment
  
✓
State withholding
Varies by state
Varies by state
State unemployment
Varies by state
Varies by state

Report Employer and Employee dependent-care FSA contributions in Box 10 of Form W-2.

Annual limits and rollover (2025)

Plan
Annual limit
Rollover to 2026
FSA – Medical
$3,300
$660
FSA – Dependent care
$5,000 per household
n/a

There is no catch-up contribution for FSAs. Unused funds generally forfeit at year-end, but a plan may allow the rollover shown above. irs.gov

Manage FSAs in OnTheClock

Add the benefit at the company level

  1. Open the company and select Benefits.
  2. Select Add benefit.
  3. Complete the fields:
      • Type – FSA medical or FSA dependent care
      • Description – Appears on pay stubs and reports.
      • Period – None = every pay period; Monthly = monthly max.
      • Leave contribution amounts/percentages blank unless they apply to all Employees.
      • Effective start – First date the plan is available.
      • Effective end – Leave blank unless you know the end date.
  4. Select Save.

Assign the benefit to an Employee

  1. Open the Employee and select Benefits.
  2. Select Add benefit → Assign existing company benefit.
  3. Review or edit:
      • Company contribution amount / percentage – Employer funding (if any).
      • Employee contribution amount / percentage – Employee deduction per pay period.
      • Effective start – First payroll that includes the deduction.
      • Effective end – Leave blank to continue indefinitely.
  4. Select Save.

FAQs

Do FSAs allow catch-up contributions?

No. Unlike Health Savings Accounts, FSAs do not have catch-up provisions for Employees near retirement.

How long can Employees use unused funds?

Funds not spent by December 31 generally forfeit, unless the plan offers either:

  • A rollover (up to $660 for 2025 plans), or
  • A grace period (up to 2 ½ months). Plan rules vary.