By default, yes: money left in your health FSA at the end of the plan year is forfeited under IRS rules. But most employers soften that outcome by adopting one of two options. Your plan may let you carry up to $680 into 2026, or it may give you an extra two and a half months after year-end to spend the balance down. It cannot do both. So whether you actually have to use your FSA by December 31 depends entirely on which option, if any, your employer chose.
The Default Rule
Health FSAs sit under Internal Revenue Code Section 125, which governs cafeteria plans and stops these accounts from working as long-term tax shelters.1Office of the Law Revision Counsel. 26 USC 125 – Cafeteria Plans Contributions go in pre-tax, but they have to be spent on eligible expenses within the plan year. Most plans run on the calendar year and end December 31; some employers use a different fiscal year. Miss that deadline and, under the baseline rule, the money is gone.
For 2026, you can contribute up to $3,400 through payroll deductions. Your full annual election is available to spend on the first day of the plan year, even if only a paycheck or two has been deducted. That front-loading is a real benefit, but it also means there’s no gradual buildup of “savings” to lean on later.
The Grace Period Option
Some employers extend the spending deadline under IRS Notice 2005-42. A grace period gives you an extra two months and 15 days after the plan year ends to incur new eligible expenses using last year’s leftover balance.2Internal Revenue Service. Notice 2005-42 For a calendar-year plan, that pushes your deadline from December 31 to March 15.
The grace period covers your entire remaining balance, not a capped amount. If $1,200 is sitting in your account on December 31 and your plan offers a grace period, all $1,200 is still available through March 15. Anything left after that date is forfeited. Grace periods are optional, so check your summary plan description or ask your benefits administrator whether yours includes one.
The Carryover Option
The other relief mechanism is a carryover, created by IRS Notice 2013-71. Instead of extending the deadline, it lets you roll a limited amount of unused funds into the next plan year.3Internal Revenue Service. Notice 2013-71 – Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements For 2026 plan years, the maximum carryover is $680, up from $660 in 2025. Anything above $680 left at year-end is still forfeited.
Carried-over money doesn’t count against next year’s contribution limit. Roll $680 into 2026 and elect a full $3,400 in fresh contributions, and you’ll have $4,080 available. Employers can also set a carryover cap lower than the IRS ceiling, so your plan’s actual carryover might be less than $680.
Your Plan Offers One or the Other
A health FSA that provides a carryover cannot also provide a grace period, and vice versa. The IRS prohibits combining the two for the same qualified benefit.3Internal Revenue Service. Notice 2013-71 – Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements You’ll have one, the other, or neither, depending on how your employer designed the plan. If you don’t know which applies, a quick email to HR is worth sending before year-end, because the answer changes your entire spending strategy.
The Run-Out Period Is Different
People often confuse the spending deadline with the claim-filing deadline. Even after the deadline to incur new expenses passes, most plans provide a run-out period for submitting reimbursement paperwork.4Internal Revenue Service. IRS Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans This window is only for filing claims on expenses you already incurred before the deadline. You cannot use it to receive new medical services or buy new eligible items.
Run-out periods typically run 60 to 90 days, though your employer sets the exact length. For a calendar-year plan with a 90-day run-out, you’d have until late March to submit documentation for that December dental visit. Each claim needs to include the patient’s name, the provider’s name and address, the date of service, a description of the service, and the amount charged. An itemized receipt or an insurance explanation of benefits usually covers all of it. Miss the run-out deadline and the reimbursement is lost, even for an expense that was otherwise perfectly eligible.
Ways to Spend Down a Balance Before Year-End
If you’re looking at a balance in November or December, the list of genuinely eligible expenses is broader than most people realize. The CARES Act permanently removed the prescription requirement for over-the-counter medications, so pain relievers, allergy medicine, cold remedies, and sleep aids all qualify without a doctor’s note.
Categories worth working through:
- Sunscreen and lip balm rated SPF 15 or higher with broad-spectrum protection.
- Menstrual products, which have been FSA-eligible since 2020.
- Prescription eyewear, contacts, contact lens solution, prescription sunglasses, and eye exams to update your prescription.
- Dental cleanings, fillings, and orthodontic adjustments incurred before the deadline.
- First aid supplies including bandages, first aid kits, thermometers, and blood pressure monitors.
- Mileage to and from medical appointments at 20.5 cents per mile for 2026, plus tolls and parking.5Internal Revenue Service. Notice 26-10 – 2026 Standard Mileage Rates
Higher-ticket items like air purifiers, TENS units, and diagnostic health monitors may qualify but often need a letter of medical necessity from your doctor. Get the letter before you make the purchase. Gym memberships, general fitness equipment, and daily multivitamins are not eligible unless tied to a specific diagnosed condition with documentation.
If You Leave Your Job Before Year-End
Health FSA coverage generally ends on your last day of employment. Expenses have to be incurred while you’re an active participant, so a doctor visit the week after your termination date isn’t reimbursable from your old FSA even if money is sitting in it. Any remaining balance reverts to the employer’s plan.
There is one thing working in your favor if you spent aggressively early in the year. Because the full election is available on day one, if you elected $3,400 and spent $2,800 by March, then leave in April having contributed only $1,100 through payroll, your employer cannot recover the difference. You received more than you paid in, and the plan absorbs the shortfall.
COBRA continuation is sometimes available for a health FSA, but the math rarely works. The employer can charge up to 102% of the full cost of coverage, so the FSA is only worth continuing through COBRA when the benefit still available for the rest of the plan year exceeds what you’d pay in premiums. Run the numbers before electing it.
What Happens to Money You Forfeit
Money you don’t spend, carry over, or use during a grace period is permanently forfeited. Your employer cannot refund any part of the balance, and you cannot redirect it into a retirement account or another benefit.4Internal Revenue Service. IRS Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans Forfeited funds stay with the employer’s plan and are typically used to offset the plan’s administrative costs or reduce plan costs the following year.
The best defense is realistic budgeting at open enrollment. Review last year’s medical spending, factor in any planned procedures or prescriptions, and err slightly low when you’re unsure. Losing the tax benefit on a few hundred dollars of income costs far less than forfeiting a few hundred dollars outright. If your plan offers a carryover, that $680 cushion helps, but it works best as a safety net rather than a target.