If your health FSA doesn't offer a carryover or grace period, or you have more left over than those options cover, the money above that limit is gone the moment your plan year ends, usually Dec. 31. This isn't a rare edge case. Americans forfeited roughly $4 billion in unused FSA money in 2023 alone, according to the Employee Benefits Research Institute, and 47% of FSA holders forfeited some amount that year, an average of $422 per account. The deadline is real, the forfeited money is real, and for most people the fix is straightforward: spend down what's left before the window closes.
What Is the FSA Use-It-or-Lose-It Rule, Exactly?
A Flexible Spending Account is funded with pre-tax payroll contributions for the current plan year only, and by default any balance you haven't spent by the end of that year is forfeited back to your employer, not refunded to you. The IRS allows employers to soften this in one of two ways, a carryover of a limited dollar amount into the next year, or a grace period of extra time to spend the old year's money, but a plan can only offer one of these, never both, and many employers offer neither. If you've never checked which option your plan uses, that's the single most important thing to find out before assuming you have until March to spend anything.
How Much Money Do Americans Actually Forfeit Each Year?
EBRI's account-level data shows forfeitures climbing before easing slightly: $5.1 billion lost in 2022, the first year total forfeitures topped $5 billion, followed by about $4 billion in 2023 as more plans adopted carryover provisions. Even with that improvement, close to half of all FSA holders, 47% in 2023, forfeited at least some money, and the average amount lost per account was $422. That's not a rounding error on a small benefit. For a lot of households, $422 is a meaningful grocery bill or a car payment, handed back to an employer because a calendar deadline passed unnoticed.
What's Your Real Deadline This Year?
It depends entirely on which of the two IRS-permitted options your employer chose, so check your plan documents or ask HR directly rather than assuming. A carryover lets you roll up to $680 of unused 2026 health FSA funds into 2027, with anything above that forfeited regardless. A grace period instead gives you up to 2.5 extra months, typically through March 15, to spend the prior year's entire remaining balance on new expenses, with no cap on the amount carried into that window. Plenty of employers offer neither, in which case the strict rule applies exactly as written: unspent money is gone at midnight on Dec. 31, full stop.
Does a Dependent Care FSA Work the Same Way?
No, and the difference matters if you have one. A dependent care FSA is never allowed to carry over any balance, IRS rules bar that option entirely for these accounts, so a grace period is the only relief an employer can offer, and plenty don't offer that either. The 2026 dependent care FSA contribution limit jumped to $7,500 (from $5,000), its first increase since 1986, enacted through the One Big Beautiful Bill and not indexed for inflation going forward. A bigger limit is only a bigger tax break if you actually have that much in real, eligible dependent care costs to submit. Electing the full $7,500 without a specific plan to spend it just raises how much you stand to forfeit.
How Do You Actually Spend Down an FSA Before You Lose It?
Most people underestimate how broad the eligible expense list actually is. Since a 2020 rule change, over-the-counter medications and menstrual care products no longer require a prescription to qualify, which opened up a lot of everyday spending that used to be off-limits. Before your deadline, check your plan administrator's app for the current eligible-items list, then work through what actually applies to you:
- Vision: prescription glasses, contacts, contact lens solution, and even prescription sunglasses.
- Dental and orthodontia: copays, cleanings not covered by insurance, and orthodontic treatment already in progress.
- Over-the-counter items: pain relievers, allergy medication, first aid supplies, and sunscreen rated SPF 15 or higher.
- Family and baby items: breast pumps and supplies, baby monitors with health-monitoring features, and some at-home diagnostic test kits.
- Other care: physical therapy copays, chiropractic visits, and acupuncture, where allowed under your plan.
If you're still short of your balance after that list, scheduling an already-planned dental or vision appointment before the deadline, rather than after it, is often the single biggest lever available.
How Should This Change What You Elect for Next Year?
The honest fix isn't just spending harder at the deadline, it's electing a more accurate number the next time open enrollment comes around. Pull your actual spending from this year, prescriptions, copays, planned procedures, and use that real number as your baseline instead of a round guess. The 2026 health FSA contribution limit is $3,400 per employee, but nothing requires you to elect the max. Electing to the level of your known, recurring costs, and treating anything beyond that as a bonus only if you're confident you'll spend it, is what actually keeps this specific kind of forfeiture from repeating year after year.
What Are the Real Risks and Trade-Offs?
- The forfeiture is not a penalty, it's the account's basic design. An FSA's entire tax advantage is funded partly by the money other participants forfeit, so "no rollover" isn't a bug in your specific plan, it's how the product works.
- Carryover and grace period are employer choices, not guarantees. Two companies offering the "same" FSA benefit can have completely different real deadlines, so never assume based on a previous job's plan.
- Overspending to avoid forfeiture isn't a win either. Buying items you don't need just to zero out a balance trades a tax-advantaged forfeiture for an equally wasted straight cash purchase.
- A dependent care FSA carries more forfeiture risk, not less. No carryover option exists at all, so the higher 2026 limit makes an inaccurate election more expensive to get wrong, not safer.
- Job changes typically end your FSA access immediately. Unlike an HSA, an FSA balance generally doesn't follow you if you leave your employer mid-year, another reason to keep the election close to your real, predictable spending.
If you're deciding between an FSA and a Health Savings Account in the first place, our HSA vs. FSA comparison covers the eligibility rules that actually decide which one is even available to you, and our breakdown of the HSA's triple tax advantage covers why an HSA never has this forfeiture problem to begin with.
—
Spicy Investing