A healthcare reimbursement account lets you set aside pre-tax money to pay for medical expenses your insurance doesn't cover

A healthcare reimbursement account is a savings account your employer sets up for you. Money goes in before taxes are taken out of your paycheck, which means you pay less in federal income tax that year. You then use that money to pay for medical, dental, and vision expenses — things like copays, deductibles, prescription glasses, or dental work. The account belongs to you while you work there, but the rules about how much you can put in and what you can spend it on are set by your employer and federal law.

The main reason people use these accounts is the tax savings. If you know you'll spend $2,000 on medical expenses this year anyway, putting that $2,000 into a reimbursement account means you don't pay income tax on it. Depending on your tax bracket, that could save you $400 to $600 in taxes.

Key Takeaways

  • Money you put into a healthcare reimbursement account is not taxed as income, which reduces your annual tax bill.
  • You can only contribute during your employer's open enrollment period, usually once a year in the fall.
  • You must estimate how much you'll spend on medical expenses in the coming year — money left over at the end of the year is typically forfeited.
  • You pay for may be able to access expenses out of pocket first, then submit receipts to your account administrator to get reimbursed.
  • Healthcare reimbursement accounts are separate from health insurance and work alongside whatever coverage your employer offers.

The two main types: FSA and HSA

There are two kinds of healthcare reimbursement accounts, and they work differently. A Flexible Spending Account (FSA) is the more common one. You choose how much to contribute each year (up to a federal limit that changes annually), and you can spend it on a wide range of medical expenses. The catch: money you don't use by the end of the year is gone. Some employers offer a small grace period or let you carry over a small amount, but most do not.

A Health Savings Account (HSA) is only available if you're enrolled in a high-deductible health insurance plan. The contribution limits are higher than an FSA, and unused money rolls over to the next year — you never lose it. An HSA also works like an investment account: money you don't spend can be invested, and it grows tax-free. HSAs are more flexible and powerful, but you have to may have access to by having the right kind of insurance.

Some employers offer both, and some offer only one. Your employer's benefits guide will tell you which accounts are available to you.

How much you can contribute and when

You decide how much to contribute during open enrollment, a period your employer sets each year — usually in October or November for benefits that start January 1st. You tell your employer how much money you want taken out of your paycheck each pay period and put into the account. The federal government sets a maximum contribution limit; for FSAs, this limit changes yearly and is usually in the $3,000 range, while HSA limits are higher. Your employer's benefits materials will show the current limit.

The key is that you're making an estimate. You need to guess how much you'll actually spend on medical expenses in the next year. If you contribute too much and don't spend it, that money is lost (with FSAs). If you contribute too little, you'll have to pay for the rest out of pocket without the tax benefit. This is why many people contribute conservatively — they'd rather leave some tax savings on the table than risk losing money.

You can only change your contribution during open enrollment, unless you have a may have access to life event — marriage, birth of a child, loss of other insurance, or a significant change in your medical needs. Your employer's HR department decides what counts as may have access to.

What expenses you can pay for

Both FSAs and HSAs cover a long list of medical expenses, but not everything. may be able to access expenses include copays and coinsurance (the portion of a bill your insurance doesn't pay), deductibles, prescription medications, dental work, vision care, and medical equipment like crutches or blood pressure monitors. You can also use the money for things insurance won't cover, like certain over-the-counter medications or acupuncture, depending on what your plan allows.

What's not covered: health insurance premiums themselves, cosmetic procedures, gym memberships, and most over-the-counter items that aren't specifically approved. Your account administrator will give you a list of may be able to access expenses, and you can always call them to ask whether a specific item qualifies before you buy it.

How to actually use the money

You don't hand your account administrator a debit card and walk away. Instead, you pay for medical expenses out of your own pocket, keep the receipt, and then submit a reimbursement request. Most account administrators now have a website or app where you upload a photo of the receipt and request reimbursement. The administrator reviews it, confirms it's an may be able to access expense, and deposits the money back into your bank account — usually within a few business days.

Some employers give you a debit card linked to the account, which lets you pay directly at the doctor's office or pharmacy without submitting receipts afterward. But even with a debit card, you should keep receipts in case the administrator asks for proof later.

The reimbursement process is straightforward, but it requires you to be organized. Keep receipts, track what you've submitted, and don't lose documentation. If you can't prove you spent the money on an may be able to access expense, the administrator won't reimburse you.

What happens to unused money

With an FSA, money you don't spend by December 31st is forfeited — your employer keeps it. This is called the "use-it-or-lose-it" rule. Some employers offer a grace period of up to 2.5 months into the next year, or they let you carry over a small amount (usually $500 to $610, depending on the year). Check your plan documents to see if your employer offers either option.

With an HSA, unused money stays in your account forever. It rolls over year to year, and you can spend it whenever you want — even after you retire or leave the job. This makes HSAs much more valuable as a long-term savings tool.

Because of the use-it-or-lose-it rule with FSAs, many people contribute conservatively. If you're unsure whether you'll spend $2,500, it's safer to contribute $1,500 and miss out on some tax savings than to lose $1,000 at year's end.

Healthcare reimbursement accounts versus regular health insurance

These accounts are not health insurance. They don't pay for doctor visits or hospital stays — your health insurance does that. A reimbursement account is a tool that helps you pay the costs your insurance doesn't cover: the deductible, copays, and other out-of-pocket expenses. You need both.

Think of it this way: health insurance protects you from catastrophic medical bills. A healthcare reimbursement account makes the costs you do have to pay easier to manage by letting you use pre-tax money. They work together, not instead of each other.

Frequently Asked Questions

What happens to my account if I leave my job?

With an FSA, you usually have 60 to 90 days after leaving to submit reimbursement requests for expenses you incurred while employed. Money left in the account is forfeited. With an HSA, the account is yours to keep — you can take it with you and use it whenever you want, even years later.

Can I use the money for my spouse or children?

Yes. You can pay for may be able to access medical expenses for your spouse and any dependents you claim on your taxes, even if they're not covered under your health insurance plan. You just need receipts showing the expense was for them.

What if I don't have a receipt?

Most administrators won't reimburse you without proof. Some may accept a bank or credit card statement showing the charge to a medical provider, but it's safer to keep receipts. If you've lost a receipt, contact the provider and ask for a duplicate or a statement of services rendered.

Can I contribute to both an FSA and an HSA at the same time?

No. If you have an HSA, you cannot contribute to an FSA in the same year. You can have a limited-purpose FSA (which only covers dental and vision) alongside an HSA, but a general FSA and HSA cannot coexist.

Is there a penalty if I use the money for something that's not medical?

Yes. If you withdraw money from an HSA for non-medical expenses before age 65, you pay income tax on the withdrawal plus a 20% penalty. With an FSA, non-medical withdrawals are straightforward not reimbursed — you can't withdraw the money at all. Always confirm an expense is may be able to access before you submit it.