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Use it or lose it: How to spend your FSA on therapy before year-end

If you have money sitting in your FSA, the clock is ticking. Most plans have a “use it or lose it” policy, meaning unused funds disappear at year-end. Therapy is an eligible expense, and even if you’re starting from scratch, you could fit in two to four sessions before most year-end deadlines, depending on provider availability.

(FSAs) and (HSAs) are pre-tax accounts that let you set aside money from your paycheck to pay for medical expenses—essentially giving you a discount on healthcare costs equal to whatever you’d normally pay in taxes on that income.

FSAs are tied to your job and typically have that year-end deadline, while HSAs belong to you personally and roll over indefinitely. Both can cover therapy, but there are some nuances to know. Below, breaks down when you can and can’t use these accounts, plus the exact steps to pay for therapy with an FSA or HSA.

Can you use your FSA for therapy?

Yes, in many cases. FSAs and HSAs cover therapy when it’s deemed “medically necessary,” which essentially means the sessions address mental health symptoms that interfere with your daily life or treat a diagnosed mental health condition like anxiety, depression, or PTSD.

The key distinction: Therapy for clinical treatment is covered, while therapy for general self-improvement typically isn’t.

When is therapy considered ‘medically necessary’?

The term “medically necessary” can feel frustratingly vague, especially when you’re trying to figure out if your FSA will cover your sessions. While each insurance plan has its own definition, :

1. Services treat, diagnose, or provide symptom relief for a health condition.
2. Treatment is generally accepted as standard medical care.
3. Services are necessary and appropriate for the health concern.
4. A licensed medical provider performs the services.

What this looks like in practice

Typically covered:

• Therapy for anxiety that interferes with work or relationships.
• Depression treatment following a major life change.
• PTSD counseling after trauma.
• Sessions to manage diagnosed bipolar disorder.
• Couples therapy when one partner has a clinical condition affecting the relationship.

Usually not covered:

• General stress management without clinical symptoms.
• Life coaching or personal development.
• Relationship enhancement without medical necessity.
• Sessions with unlicensed counselors.
• Preventive mental wellness (though some plans are expanding coverage here).

Therapists determine medical necessity during your initial intake meeting. When these standards are met, they can write a “letter of medical necessity” that explains why you’ll benefit from therapy and send that documentation to FSA administrators and insurance providers.

Therapy services that qualify for FSA

Most talk therapies delivered by licensed mental health providers qualify for FSAs when tied to a diagnosed condition or deemed medically necessary.

Types of therapy usually covered

Individual therapy: Most one-on-one talk therapy sessions are covered when medically necessary, including cognitive behavioral therapy, dialectical behavior therapy, and psychodynamic therapy.

Psychiatric care: Medication management and psychiatric evaluations are typically covered when medically required.

Group therapy: Group sessions may be covered if necessary, either alone or alongside individual therapy.

Couples/family therapy: Less commonly covered, but can qualify if essential to treating one person’s diagnosed mental health condition.

Online therapy: online therapy is equally effective as in-person sessions, so most FSAs and HSAs cover both delivery methods.

What might not be covered

Life coaching, counseling with unlicensed providers, and therapy focused solely on self-improvement or general personal development typically won’t qualify, explains , a certified financial advisor at Ameriprise Financial, since these services aren’t tied to medical treatment.

How much can you actually save?

Using an FSA for therapy typically saves you 15% to 25% or more on costs, depending on your tax bracket. Here’s the simple math.

Example 1: Paying out-of-pocket for therapy

• Therapy costs: $1,800 per year
• Your tax rate: 24% (federal + state)
• You pay $1,800 with after-tax dollars

Example 2: Using your FSA for therapy

• Therapy costs: $1,800 per year
• FSA contribution: $1,800 (pre-tax)
• Tax savings: approximately $430 (24% of $1,800)
• Your actual out-of-pocket cost: $1,370

If you have insurance: FSAs can’t pay your monthly premiums, but they cover . A $30 copay per session becomes roughly $23 to $25 when paid with FSA dollars, depending on your tax rate. For 12 sessions, that translates to about $75 in savings.

To maximize your FSA benefits, plan ahead. Most FSA funds don’t roll over year to year, so budget your therapy costs to avoid losing unused money, explains , head of revenue cycle management at Thriveworks.

How to use your FSA for therapy

Here’s how to tap into your FSA for therapy in three straightforward steps, according to Shortreed.

Step 1: Verify coverage and acceptance

• Contact your FSA plan administrator to confirm what they consider medically necessary.
• Ask your therapist if they accept FSA cards or can provide proper documentation for reimbursement.
• Confirm the therapist is licensed and can write letters of medical necessity.

Step 2: Keep detailed records

Most FSA administrators require itemized receipts from each session, not summary statements. Save every receipt and document throughout treatment.

Step 3: Submit claims or use your FSA card

If your provider accepts FSA cards, you can pay directly with your FSA debit card at the time of service. If they don’t accept FSA cards, you’ll pay with your personal funds and then submit receipts to your FSA administrator for reimbursement, Shortreed explains.

Some therapy providers streamline this process by accepting FSA cards directly and helping with documentation.

What to ask your therapist about FSA coverage

Financial considerations shouldn’t add stress to your therapy journey. Knowing whether a therapist accepts your FSA and understanding their billing process helps you focus on healing rather than worrying about costs.

Essential questions to ask:

• Do you accept FSA cards directly?
• Can you provide documentation required for FSA reimbursement?
• Will you write a letter of medical necessity if needed?
• What information do you need from me to complete FSA paperwork?
• How do you handle FSA claim denials or appeals?

Required documentation

Your therapist will write a letter of medical necessity to demonstrate why treatment is medically necessary. : your diagnosis or symptoms, how they impair daily functioning, the recommended treatment plan, and why that treatment is clinically appropriate.

FSA administrators also typically require receipts that clearly show:

• Provider name and credentials
• Date of service
• Amount charged
• Description of service (e.g., “Individual Psychotherapy Session”)
• Your name as the patient

“FSA plans require that you retain all receipts for up to two years,” Panayotov says, adding that if you misplace a receipt, you may be able to request an itemized copy from the provider.

The bottom line

FSAs and HSAs offer significant savings on therapy costs—typically 15% to 25% or more depending on your tax bracket—when sessions meet medical necessity standards. The key is working with a licensed therapist who understands these requirements and can provide proper documentation.

To maximize your benefits, verify coverage before starting treatment, keep detailed records, and choose providers experienced with FSA processes. Some companies accept FSA cards directly and handle much of the paperwork, making it easier to focus on your mental health rather than administrative hurdles.

Remember: Seeking therapy is an investment in your wellbeing, and FSAs are designed to make that investment more affordable.

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