Contributing to a medical savings account, such as an FSA (flexible spending account) can lower your taxable income. Your contributions to FSAs and health savings accounts (HSAs) accounts are tax-free.
However, there are limits to how much you can contribute each year. And if you exceed those contribution limits, you could face financial penalties.
Here's some good news: FSA contribution limits are higher for 2024 than last year. Here's what you need to know.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
FSA limit for 2024
If you don’t have a high-deductible health plan with an HSA, opening an FSA may be an option. However, unlike health savings accounts, you can only open an FSA if your employer offers one. That means self-employed taxpayers aren’t eligible for FSAs.
But if you have an FSA in 2024, here are the maximum amounts you can contribute for 2024 (tax returns normally filed in 2025).
- The 2024 maximum FSA contribution limit is $3,200.
- For cafeteria plans that allow the carryover of unused amounts, the maximum carryover amount for 2024 is $640.
Penalty for making excess contributions
If you exceed contribution limits for your FSA, the excess amount will be subject to regular income tax. But that’s not all. An excise tax of 6% will also apply to any amount over the contribution limit.
If you’ve exceeded your medical savings plan contribution limit, you can correct the mistake, if you withdraw the excess funds before the federal tax filing deadline. Don’t forget to withdraw any interest earned on the excess funds to avoid additional taxes.
HSA vs. FSA: Which is better?
HSAs and FSAs each come with advantages and disadvantages. Which type of medical savings account is best for you depends on your circumstances.
For example, a low deductible health plan (which disqualifies you for an HSA) makes more sense for people with significant medical expenses. However, an HSA might be a good option for taxpayers with lower out-of-pocket medical expenses or if their employer doesn’t offer any medical savings account.
What are qualified medical expenses? Typically, funds in an FSA or HSA can be used to pay for the same qualifying medical expenses. Here are a few examples of expenses that qualify:
- Copays
- Prescription and non-prescription drugs
- Prescription eyeglasses
- Dental procedures
For a full list of qualifying medical expenses, you can check with your medical savings account provider.
Related Content
-
A Checklist for Retiring in 2025Navigating the final stretch of your professional career can be daunting. We've compiled a checklist to help you put your best foot forward into retirement.
-
Leave Your Life Story as a Legacy for Your HeirsHere are eight resources to help pass your life story on to your family. How do you want to be remembered?
-
Can Tariffs Make Childcare More Affordable?Tariffs President-elect Trump suggested tariffs can address the childcare crisis, but economists are doubtful.
-
Are You a Renter? You Could Save on TaxesTax Breaks With these tax savings at your fingertips, rent may be more affordable
-
2025 Open Enrollment: Some DACA Recipients Can Purchase Affordable Care Act Health InsuranceOpen Enrollment Your eligibility to purchase health insurance from the federal marketplace may have changed. Here's what you need to know.
-
Holiday Shopping Tax Tips for Business OwnersTax Deductions Before hitting the sales, businesses should know these key deductions and look out for overspending.
-
NYC Congestion Pricing: Ghost Tax or Necessary Fee?State Taxes Drivers headed to Manhattan’s downtown district will face a new $9 toll in January.
-
Tax Credit vs. Tax Deduction: What’s the Difference?Tax Breaks Your guide to tax deductions and credits, how the IRS treats them differently, and how they impact your tax bill.
-
Premium Tax Credit: Are You Eligible For This Health Insurance Tax Break?Tax Credits The tax credit can help qualifying individuals pay for coverage from the Affordable Care Act’s health insurance marketplace.
-
IRS: Here’s How to Recover Your Tax Records After a Natural DisasterTax Records Your tax documents can help you get federal relief faster, the IRS says.
