FSAs are offered by some employers as a part of a benefits package. They have some specific rules set by the IRS:

You can spend FSA money only on “qualified medical expenses,” as determined by the IRS.

The Right Amount For Your FSA
The money in an FSA comes out of your paycheck before taxes, in regular increments. FSAs are generally pre-funded, meaning the full contribution is available to spend at the beginning of the year. If you leave your company mid-year, you will likely have to pay back spent funds that haven't been covered by your paycheck deductions yet.

The rule for the money is “use or lose,” meaning you lose any amount you haven't spent at the end of the year. That's unlike a health savings account, or HSA, where the money you add is yours forever.

Spend your FSA money by the deadline
“The No. 1 thing you should know about your FSA is what the deadline is,” says Ijeoma Iruke, consumer education specialist at FSAstore.com. “We work really hard, contribute these funds, get the tax benefits — it’s a total bummer if you set this money aside and you’re not able to use it.”

However, the IRS rules make the FSA use-or-lose-it deadline flexible. That generally plays out in two ways. Ask your benefits administrator whether your employer offers either of these options before deciding on your final contribution for the next year:

Many employers let you carry over as much as $500 in unused funds for up to a year.

Other employers might offer a grace period, in which you can spend the unused money in the first 2½ months of the next plan year.

Who do you "lose it” to? Any leftover money goes back to the owner of the FSA plan, most likely your employer, “to offset administrative expenses,” says Jody Dietel, chief compliance officer at WageWorks, a company that provides benefits on behalf of employers.

Determining your FSA amount
The FSA contribution limit in 2018 will be $2,650, which comes out to about $221 per month.

If your medical expenses are straightforward, here are two easy rules of thumb for choosing an FSA amount:

If your out-of-pocket medical bills typically amount to $221 a month or more — or roughly $2,650 a year — consider contributing the maximum to your FSA.

If your medical expenses are generally low, contributing the total of your approximate copays, dental and vision expenses for next year is probably enough.

Medical costs can be hard to predict. You can use this year’s expenses to predict next year’s with the help of this calculator.