Can you use FSA funds to pay for a gym membership or exercise classes? The Internal Revenue Service (IRS) typically does not allow funds from a Flexible Spending Account (FSA) to pay for membership dues at health clubs or gyms. However, the IRS allows FSA funds to be used for paying separate fees charged at health institutes for specific activities prescribed by doctors.

Key Takeaways

  • A flexible spending account (FSA) allows employees to use pre-tax dollars out of their paychecks to cover qualified health expenses.
  • Gym memberships and exercise classes, like pilates or spinning, are not covered by FSAs.
  • Under certain (and rare) circumstances, FSA funds may be used for a gym membership under the advisement of a doctor. 
  • FSA accounts must be spent during the calendar year, although some plans allow for a rollover period for amounts up to $500. 

How do Flexible Spending Accounts Work?

Employees use FSAs to set pre-tax dollars aside to cover various qualified medical expenses. FSAs are typically funded through salary reduction agreements with employers, and contributions to FSAs are exempt from employment and federal income taxes. Also, employers may choose to contribute to FSAs.

In light of the COVID-19 pandemic, Congress passed the Consolidated Appropriations Act, 2021 that offers more discretion for FSA and dependent care assistance programs. The Act allows for more flexibility when it comes to carrying over unused balances from plan years 2020 and 2021, as well as extending permissible grace periods for these plan years.

Most open-enrollment periods occur in November or December. Beneficiaries of FSAs must generally spend the money by the end of a calendar year, otherwise the funds are lost. However, certain plans allow employees to have a grace period or carryover. Distributions from FSAs are typically tax-free if they are used for qualified medical expenses. In 2020 and 2021, the FSA contribution limit is $2,750 for a qualified FSA.

FSA accounts can also be used to pay for medical expenses for spouses or children under the age of 26, provided you have added them to your health plan.

Companies have two choices on how to disperse FSA funds—via reimbursement (meaning the employee will be responsible for providing all receipts) or a debit card designed to use FSA funds.

Qualified Medical Expenses

The IRS issued Publication 502, which defines qualified medical expenses as those indicated in the FSA plan that would typically qualify for deduction as medical and dental expenses. For example, FSA plans can be used for chiropractor visits, prescriptions, contact lenses and eyeglasses, and co-pays at the doctor's office. However, the IRS does not consider nonprescription medicines, except for insulin, as qualified medical expenses. All qualified medical expenses must require a doctor's prescription.

The IRS does not allow FSA funds to be used for paying health insurance premiums and long-term care coverage. Also, the IRS considers gym membership to be a general health cost a person does not have to necessarily incur to treat a specific medical condition.

In rare circumstances, a doctor may issue a medical note advising an FSA beneficiary to enroll in a gym to treat his specific condition. In this case, FSA funds may be used to pay for a gym membership. Also, special group exercises or fees paid for classes in a gym that are prescribed by a doctor to treat specific diseases may be considered qualified medical expenses.