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
Add the benefit at the company level
- Open the company and select Benefits.
- Select Add benefit.
- Complete the fields:
- Select Save.
Assign the benefit to an Employee
- Open the Employee and select Benefits.
- Select Add benefit → Assign existing company benefit.
- Review or edit:
- 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.