To contribute to an FSA, you enroll through your employer’s cafeteria plan during open enrollment and elect a dollar amount that comes out of your paycheck in equal pre-tax installments over the plan year. For 2026, the ceiling is $3,400 for a health FSA and $7,500 per household for a dependent care FSA.1Internal Revenue Service. Revenue Procedure 2025-322Office of the Law Revision Counsel. 26 USC 129 – Dependent Care Assistance Programs Everything else about contributing to an FSA follows from those two facts: your employer runs the plan, and the money moves through payroll.
Who Can Contribute
FSAs live inside employer-sponsored cafeteria plans authorized by Section 125 of the Internal Revenue Code, and the statute limits participation to employees.3Office of the Law Revision Counsel. 26 USC 125 – Cafeteria Plans If you receive a 1099-NEC as an independent contractor, you cannot contribute at all. W-2 status is the entry ticket.
Even as a W-2 employee, your specific plan may impose a waiting period for new hires (capped at 90 days for health coverage under federal rules), exclude part-time workers below a minimum-hours threshold, or tie FSA eligibility to enrollment in the company’s group health plan.4HealthCare.gov. How the Affordable Care Act Affects Small Businesses Read the plan document your HR team provides; it controls.
2026 Contribution Limits
The IRS indexes the health FSA limit to inflation. For plan years beginning in 2026, salary reduction contributions to a health FSA cap at $3,400.1Internal Revenue Service. Revenue Procedure 2025-32 Employers can set a lower cap in their plan document, so check your company’s specific number before you pick an election. If you and your spouse each have access to a health FSA through different employers, each of you can elect up to the full $3,400 in your own account.
The dependent care FSA covers daycare, preschool, and after-school programs for children under 13, along with care for a dependent who cannot care for themselves. Starting in 2026, the One Big Beautiful Bill Act raised the annual limit to $7,500 for married couples filing jointly and for single parents, and $3,750 for married individuals filing separately.2Office of the Law Revision Counsel. 26 USC 129 – Dependent Care Assistance Programs That is a sizable jump from the $5,000 cap that had been in place for years. The health FSA and dependent care FSA have entirely separate limits; contributing the maximum to one does not affect the other.
When You Can Enroll
Enrollment happens during your employer’s annual open enrollment window, which usually runs in the final months of the calendar year for plans beginning January 1. Miss the window and you generally wait until next year.
The exception is a qualifying life event. The IRS lets you change your election mid-year after certain events, including marriage, divorce, the birth or adoption of a child, or a change in your or your spouse’s employment status. You typically have from 31 days before to 60 days after the event to submit the request to your benefits administrator.5FSAFEDS. Qualifying Life Events Quick Reference Guide Employers enforce that deadline strictly, and there is no appeals process for a late filing.
How to Submit Your Election
Most employers run enrollment through an online benefits portal or a third-party administrator. Log in, find the FSA section, enter your annual dollar amount, and submit. Have your employee ID and benefit plan identifier ready so the system links the election to the right profile. Some smaller employers still use paper forms routed through HR.
After you submit, the system generates a confirmation statement or election summary showing your amount and the effective date. Save it. If a payroll deduction later comes in wrong, that document is what fixes it. Review the summary before you close out, because correcting a mistake after enrollment closes takes either a qualifying life event or a wait until next year’s window.
How Payroll Deductions Work
Once your election is locked in, your employer divides the annual amount evenly across the remaining pay periods of the plan year. Deductions typically begin with the first paycheck of the new plan year.
Those deductions come out of your gross pay before federal income tax, Social Security tax, and Medicare tax are calculated.6USDA NFC. Flexible Spending Account That pre-tax treatment is the whole point. On a $3,400 health FSA election, someone in the 22% federal bracket saves roughly $748 in income tax plus another $260 in FICA at 7.65%. Most states also exempt the contribution from state income tax, though New Jersey and Pennsylvania are notable exceptions. Your pay stub will show the withholding, often labeled “FSA” or “Sec 125.”
The Uniform Coverage Rule for Health FSAs
With a health FSA, your full annual election is available to spend on the first day of the plan year, no matter how little has been withheld from your paycheck so far. This is the uniform coverage rule.7IRS.gov. Health FSA Uniform Coverage Rules Elect $3,400, run into a major dental bill in January, and you can reimburse the whole $3,400 that month even though only one or two deductions have hit.
Dependent care FSAs work differently. They reimburse only up to the amount you have actually contributed to date. That distinction matters if you were planning to front-load a big expense.
If You Also Want an HSA
A standard health FSA disqualifies you from contributing to a Health Savings Account. HSA eligibility requires that you not be covered by any non-HDHP health plan that covers the same benefits your HDHP covers, and a general-purpose health FSA fails that test.8Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
The workaround is a limited-purpose FSA, which restricts reimbursements to dental and vision expenses. Those categories fall outside the disqualifying coverage definition, so a limited-purpose FSA can coexist with an HSA.8Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts It uses the same $3,400 limit as a standard health FSA. If your employer offers both the HDHP and a limited-purpose FSA, you can run both accounts pre-tax.
Choosing an Election Without Losing Money
FSAs run on a use-it-or-lose-it rule. Anything left in the account at the end of the plan year that exceeds your plan’s relief provisions gets forfeited back to the employer.9Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans The IRS lets employers offer one of two optional safety valves, but not both.
Grace Period
A grace period adds up to two and a half months after the plan year ends for spending down leftover funds on qualifying expenses.9Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans For a calendar-year plan, that pushes the deadline to mid-March. Anything still unspent then is forfeited.
Carryover
Instead of a grace period, the employer can allow carryover into the next plan year. For 2026, the maximum carryover is $680.1Internal Revenue Service. Revenue Procedure 2025-32 Employers can cap it lower but not higher. Balances above the cap are forfeited. Carried-over funds do not count against next year’s contribution limit, so you could have up to $4,080 available in 2026 by carrying the full $680 from the prior year and electing $3,400 fresh.
The most common FSA mistake is overestimating expenses and forfeiting hundreds of dollars at year-end. When picking your amount, look at what you actually spent on medical or dependent care costs over the past two years rather than guessing high. A conservative election you spend fully beats a maximum election you cannot use.