Yes, FSA funds do expire. Money in a health flexible spending account is tied to a plan year, and whatever you haven’t spent on qualified expenses by the end of that year is generally forfeited. Two employer-optional features can soften that deadline: a grace period of up to two and a half extra months, or a carryover of up to $680 into the next plan year for 2026.1Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans Neither erases the deadline, and your plan can only offer one of them.
The Use-It-or-Lose-It Rule
Contributions you make during a plan year must pay for qualified medical expenses incurred during that same plan year. For most employers on a calendar-year plan, that window runs from January 1 through December 31. If you elected $3,400 for 2026 and only spent $2,200 on eligible care, the remaining $1,200 is gone unless your plan adds a grace period or carryover.
FSAs are structured as spending accounts, not savings vehicles. The tax break on contributions comes paired with a shelf life, and the IRS does not let you cash out an unused balance or convert it into another benefit.2Internal Revenue Service. Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements Your annual election locks in on day one of the plan year, so the planning happens during open enrollment.
For 2026, the maximum you can contribute to a health FSA is $3,400. The bigger the election, the more the deadline matters.
Grace Periods Extend the Spending Deadline
Some employers add a grace period on the back end of the plan year. Under IRS rules, this extension can last up to two and a half months, which pushes a calendar-year plan’s deadline to March 15 of the following year.3IRS. Notice 2005-42 During those extra weeks, new expenses you incur can be paid from last year’s remaining balance as if the plan year were still running.
A grace period is not automatic. Your employer has to choose it and write it into the plan document. Check your Summary Plan Description or ask your benefits department. If your plan does include the full grace period, you effectively have 14 months and 15 days to use each year’s contributions.3IRS. Notice 2005-42 Anything left after March 15 is forfeited.
The Carryover Option
Instead of a grace period, some employers offer a carryover that rolls a limited portion of your unused balance into the next plan year. For 2026, the maximum carryover is $680.1Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans Anything above that cap is forfeited. If you finish 2026 with $900 unused, $680 carries into 2027 and $220 disappears.
Two details are worth knowing. The amount that rolls over does not count against next year’s contribution limit, so you can still elect the full maximum for 2027 on top of the carried balance.1Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans And your employer can set the carryover cap below the IRS maximum. Some plans allow only $500 or $400 to roll forward, so read the specific terms.
Federal rules prohibit an employer from offering both a grace period and a carryover for the same health FSA. It’s one or the other, or neither.2Internal Revenue Service. Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements Find out which one your plan uses well before the year winds down.
The Run-Out Period for Filing Claims
The deadline to spend the money is not the same as the deadline to submit paperwork. Most plans include a run-out period, typically 90 days after the plan year ends, during which you can file reimbursement requests for expenses already incurred during the plan year or grace period. For a calendar-year plan, that usually means you have until roughly March 31 to submit documentation.
Your claim needs enough detail for the administrator to verify it:
- Date of service — when you received the care or bought the item
- Provider or merchant name
- Description of the service or item
- Amount charged
A credit card statement or a receipt showing only a total will not be enough. You need an itemized receipt or an Explanation of Benefits from your insurer showing the specific service. Missing the filing window is one of the most common ways people lose money on expenses they already paid for. If you had a December procedure, start gathering paperwork right away rather than waiting until March.
What Happens If You Leave Your Job
Quitting, being laid off, or otherwise separating from your employer mid-year generally ends your health FSA access on your last day of employment. You can still submit claims for expenses incurred before your termination date during the plan’s run-out period, but you cannot incur new expenses after your coverage stops.
One feature works in your favor before you leave. Under the uniform coverage rule, your entire annual election is available for reimbursement from the first day of the plan year, regardless of how much has actually been deducted from your paychecks.4Internal Revenue Service. CCA-1217103-09 – Uniform Coverage Rule If you elected $3,400 for 2026 but only $1,500 has come out of your paychecks so far, you can still spend the full $3,400 on qualified expenses before your last day. The employer absorbs the shortfall.
There is also a COBRA path in narrow cases. If your health FSA is “underspent” when you leave — meaning the remaining balance exceeds what it would cost to pay COBRA premiums for the account through the end of the plan year — you may be able to continue it. COBRA for a health FSA runs only through the end of the current plan year, not the 18 months typical for medical coverage, and the premium cost usually makes this worthwhile only when a substantial balance is left.
Dependent Care FSAs Follow Different Rules
Everything above covers health FSAs. Dependent care FSAs, which pay for daycare, preschool, and summer camp, work differently in one important way: they cannot use the carryover provision. The IRS carryover rule applies only to health FSAs.2Internal Revenue Service. Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements Your employer can offer a grace period for a dependent care FSA, but anything left after that period is forfeited with no rollover.
For 2026, the dependent care FSA contribution maximum is $7,500 for married filing jointly and $3,750 for married filing separately. That is an increase from the long-standing $5,000 limit, reflecting a legislative change that takes effect for tax years beginning after December 31, 2025.5Office of the Law Revision Counsel. 26 USC 129 – Dependent Care Assistance Programs With no carryover backstop, careful estimating of the year’s care costs matters even more than with a health FSA.
The Reservist Exception
Military reservists called to active duty for 180 days or more have a narrow exception. Under the HEART Act, qualifying reservists can request a taxable distribution of an unused health FSA balance rather than forfeiting it. The distribution counts as gross income and is subject to payroll taxes, so it is not tax-free, but it beats losing the money. The request must be made between the date of the activation order and the last day of the plan year or grace period, and you will need to provide a copy of your orders. This applies to health FSAs only, not dependent care accounts.
Spending Down a Balance Before the Deadline
If you find yourself with a balance in November or December, the range of eligible expenses is wider than most people assume. Since the CARES Act took effect in 2020, over-the-counter medicines are eligible without a prescription, permanently. That covers pain relievers, allergy medication, cold and flu medicine, antacids, sleep aids, and menstrual care products.
Other eligible categories include:
- Vision care — prescription eyeglasses, prescription sunglasses, contact lenses, contact lens solution, and eye exams
- First aid supplies — bandages, thermometers, blood pressure monitors, and heating pads
- Sun protection — sunscreen with SPF 15 or higher
- Dental expenses — copays, cleanings, and orthodontia not covered by insurance
Scheduling a dental cleaning, an eye exam, or a physical before year-end is often the most efficient use of a leftover balance, because it shifts spending you would eventually do anyway into the account. Stocking up on contact lens solution or sunscreen works for the same reason. The goal is to redirect real spending, not to buy things that will sit unopened in a drawer.