Pretax Vision and Dental Deductions: Premiums, FSAs, and Unspent Funds

Pretax vision and dental deductions let you pay for eye and dental insurance premiums, and many of the out-of-pocket costs your insurance doesn’t cover, with dollars that are removed from your paycheck before federal income tax, state income tax, and FICA are calculated. Your employer makes this possible by running a Section 125 Cafeteria Plan, which usually offers two tools: a Premium-Only Plan that handles insurance premiums, and a Health Flexible Spending Account that reimburses actual care. For 2026 plan years, the FSA piece can hold up to $3,400 of your salary.¹

Why the Deduction Is Pretax in the First Place

Section 125 of the Internal Revenue Code authorizes what’s called a Cafeteria Plan. Under a written Cafeteria Plan, you’re allowed to choose between taxable cash wages and directing part of your salary to qualified benefits without the redirected money being treated as income.² Vision, dental, medical insurance, and group term life insurance all qualify as nontaxable benefits under that code section.³ Without that framework, money you sent from your paycheck to pay for personal insurance or care would still count as taxable income.

The Two Mechanisms: Premiums and an Expense Account

Pretax vision and dental dollars flow through two separate channels, and most employees have access to both at once.

Premium-Only Plan

A Premium-Only Plan takes the employee’s share of vision or dental insurance premiums out of your paycheck before taxes are calculated. If your employer charges you $50 a month for dental coverage, that $50 comes off the top of your gross pay and the tax withholding is figured on the smaller number. There’s no account to manage and no receipts to submit. The only condition is that the premiums have to be for benefits offered through your employer’s plan.

Health Flexible Spending Account

A Health FSA is the more involved piece. You commit a specific annual dollar amount during open enrollment, and payroll deducts it from your checks in equal installments across the plan year. You then draw from the account to reimburse yourself for out-of-pocket vision and dental costs your insurance doesn’t fully cover: co-pays, deductibles, prescription glasses, contact lenses, orthodontia, corrective laser eye surgery, and similar care.

The Premium-Only Plan covers the predictable cost of insurance. The FSA covers the unpredictable cost of actual care. You can use both at the same time.

How Much You Can Set Aside and When You Decide

For plan years beginning in 2026, the IRS caps voluntary employee salary reductions to a Health FSA at $3,400. If your plan allows a carryover, up to $680 of unused funds can roll into the following plan year.¹

You lock in your contribution amount during your employer’s annual open enrollment, before the plan year starts. That election is generally irrevocable for the entire plan year. You can’t raise it mid-year because you scheduled unexpected dental work, and you can’t scale it back because you ended up spending less than you thought.⁴

One feature works in your favor. The full annual election is available for reimbursement from day one of the plan year, even though you haven’t contributed most of it yet. This is the uniform coverage rule. If you elected $3,400 for the year and need $2,500 in dental crowns in January, you can submit the claim and be reimbursed immediately, then keep contributing through payroll for the rest of the year as scheduled.⁵

Mid-Year Changes: Qualifying Life Events

Because the election is otherwise locked, it matters which events unlock it. Treasury regulations list changes in status that may permit you to revoke your election and make a new one, as long as the change corresponds to the event:

Marriage, divorce, legal separation, or annulment.
Birth, adoption, or placement for adoption.
You or your spouse starting or ending employment, a strike or lockout, or an unpaid leave.
A dependent aging out of coverage, losing student status, or otherwise ceasing to qualify.
A move to a location where your current coverage no longer applies.

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Your plan isn’t required to allow every one of these. The regulation says a cafeteria plan “may” permit them, not that it must. Check your plan document or ask your benefits administrator which events your employer recognizes. And the new election has to correspond to the event. A new child lets you add the child and increase your FSA; it doesn’t let you drop dental coverage because you’d rather have the cash.

Which Vision and Dental Expenses Qualify

FSA-eligible expenses have to qualify as medical care under IRS rules. On the vision side, that includes eye exams, prescription eyeglasses, contact lenses, contact lens solution, and corrective laser eye surgery such as LASIK. On the dental side, cleanings, fillings, crowns, bridges, dentures, extractions, braces and orthodontia, X-rays, fluoride treatments, and sealants all qualify.

The line between eligible and ineligible follows a simple principle: if it treats or prevents a medical condition, it qualifies; if it’s purely cosmetic, it doesn’t. Teeth whitening is the dental expense people most often assume qualifies. The IRS specifically excludes it. Cosmetic veneers fall in the same category. On the vision side, non-prescription sunglasses are ineligible, and so is elective eyelid surgery done for appearance rather than to correct a functional impairment. The working test is whether the procedure meaningfully promotes proper function of the body or prevents or treats illness or disease.⁶

What Happens to Money You Don’t Spend

Health FSAs are use-it-or-lose-it by default. Any balance sitting in the account at the end of the plan year is forfeited. You can’t take it back as cash.⁷ That’s the reason conservative elections tend to work out better than optimistic ones.

Your employer can soften the rule with one of two provisions, but not both:

A grace period gives you an extra two and a half months after the plan year ends to incur new expenses against your leftover balance. If the plan year ends December 31, you’d have until March 15.
A carryover rolls up to $680 of unused funds automatically into the next plan year. Anything above that is still forfeited.

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Most plans also have a run-out period, and it’s different from a grace period. A run-out period, commonly 90 days, gives you extra time to submit receipts for care you already received during the plan year. You’re not spending new money; you’re filing claims for expenses that already happened. Whether your plan offers a grace period, a carryover, a run-out, or some combination is set by your employer’s plan document.

If You Also Have an HSA

Enrollment in a high-deductible health plan with a Health Savings Account changes the picture. A regular Health FSA that reimburses general medical expenses disqualifies you from contributing to an HSA. The workaround is a Limited-Purpose FSA.⁸

A Limited-Purpose FSA restricts reimbursements to vision and dental expenses only. Because it covers only permitted coverage rather than general medical costs, it doesn’t interfere with HSA eligibility. You can contribute the full HSA annual limit ($4,400 for self-only coverage or $8,750 for family coverage in 2026) and, in the same year, set aside up to $3,400 in a Limited-Purpose FSA for glasses, contacts, cleanings, orthodontia, and other qualifying vision and dental costs.⁹¹ The one rule to respect: you cannot get reimbursed for the same expense from both accounts.

What Happens When You Leave the Job

Your ability to spend from an FSA generally stops on your last day of employment. You can still submit claims for qualifying vision and dental expenses you incurred while you were employed, but new expenses after your termination date typically aren’t eligible. Most plans give you 60 to 90 days after termination to file those outstanding claims; the exact window is in your plan document.

If your former employer has 20 or more employees, the Health FSA counts as a group health plan under COBRA. Your employer has to offer COBRA continuation for the FSA if the account is underspent, meaning the benefit remaining exceeds what you’ve been reimbursed. If you elect COBRA you can keep submitting claims for the rest of the plan year, but the contributions come out of your pocket on an after-tax basis, with an administrative fee of up to 2%. The pretax advantage is gone, so continuing an FSA through COBRA usually only pencils out when you have significant pending vision or dental costs and a meaningful balance still in the account.

Any balance you leave behind after the plan year ends and the claims window closes is forfeited. Unlike an HSA, FSA money doesn’t move with you to a new employer.

1
Internal Revenue Service. Revenue Procedure 2025-32
2
Office of the Law Revision Counsel. 26 USC 125 – Cafeteria Plans
3
Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans
4
eCFR. 26 CFR 1.125-4 – Permitted Election Changes
5
Internal Revenue Service. Notice 2013-71 – Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements
6
Internal Revenue Service. Publication 502 – Medical and Dental Expenses
7
Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
8
Internal Revenue Service. Revenue Ruling 2004-45 – Health Savings Accounts Interaction with Other Health Arrangements
9
Internal Revenue Service. IRS Notice – 2026 HSA Contribution Limits