Yes, FSA money does expire. Any balance left in a health Flexible Spending Account at the end of your plan year is generally forfeited under the IRS “use-it-or-lose-it” rule. Two employer-optional features can soften that deadline: a grace period that gives you an extra two and a half months to spend the balance, or a carryover that lets you roll up to $680 into the next plan year. Whether either applies to you depends on how your employer set up the plan.
Why the Deadline Exists
Health FSAs are authorized under Section 125 of the Internal Revenue Code, which requires that contributions be spent on qualified medical expenses during the plan year they were set aside.1Office of the Law Revision Counsel. 26 USC 125 – Cafeteria Plans Most plans follow the calendar year, so unspent money on January 1 is usually gone.
The forfeiture is the price of the tax break. Your contributions come out of your paycheck before federal income tax, Social Security, and Medicare taxes are calculated.2Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans In exchange, the IRS requires a real risk that you’ll lose unspent money, so the account doesn’t function as tax-free savings. Any forfeited balance goes back to your employer, which can apply it toward plan administration or future premium reductions.
The Grace Period
Your employer can add a grace period that extends your spending deadline by two and a half months after the plan year ends.2Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans For a calendar-year plan, that pushes the deadline to March 15.3FSAFEDS. What Is the Use or Lose Rule
During the grace period you can incur brand-new expenses and pay for them with the previous year’s leftover funds. Schedule a dental cleaning, refill a prescription, buy eligible over-the-counter items. Not every employer offers this extension, so check your Summary Plan Description. Anything still in the account after March 15 is forfeited.
Carryover of Up to $680
Some employers offer a carryover instead, letting you move unused funds into the next plan year. For the 2026 plan year, the IRS carryover ceiling is $680.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Employers can set a lower cap but not a higher one, and anything above the cap is forfeited.
Carryover works differently from the grace period. It doesn’t just extend a deadline; it adds to your new-year balance. The rolled-over amount doesn’t count against your fresh contribution limit, so a full 2026 election of $3,400 could sit on top of up to $680 in carryover funds.4Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Many plans also make carryover funds available even if you don’t re-enroll for the new year, but some plans handle this differently, so confirm with your plan administrator.
One thing to know: IRS rules prohibit an employer from offering both a grace period and a carryover for the same health FSA.5Internal Revenue Service. Notice 2013-71 – Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements Your plan will have one, the other, or neither.
Dependent Care FSAs Follow Different Rules
If your account is a dependent care FSA rather than a health FSA, the carryover option isn’t available at all. Only health FSAs can roll over unused funds.6FSAFEDS. FAQs A dependent care FSA can still have a grace period if your employer offers one, which would give you until March 15 to incur eligible daycare or preschool expenses using the prior year’s balance. Anything left after that is forfeited. The 2026 dependent care contribution limit is $7,500, or $3,750 if you’re married filing separately.7Office of the Law Revision Counsel. 26 USC 129 – Dependent Care Assistance Programs
Submitting Old Claims Isn’t the Same as Spending New Money
Your plan may also give you a run-out period, which is often confused with the grace period but does something different. The run-out period is a window after the plan year ends — commonly 60 to 90 days, sometimes as short as 30 — during which you can submit receipts for expenses you already incurred while the plan was active.2Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans It doesn’t let you make new purchases or schedule new services.
So if you saw a doctor in late December but the itemized bill didn’t arrive until February, the run-out period is how you still get reimbursed. The length isn’t federally mandated, so check your plan documents for the exact deadline.
What Happens If You Leave Your Job
Your health FSA typically ends when your employment ends. Any unspent balance is forfeited to your employer, you can’t take the funds with you to a new job, and there’s no option to cash out.
The uniform coverage rule can work in your favor on the way out, though. Your employer must make your full annual election available for reimbursement from the first day of the plan year, no matter how much has actually been withheld from your paychecks so far.2Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans If you elected $3,400 for the year and leave in March after only a few hundred dollars in deductions, you can still claim reimbursement for up to $3,400 in qualified expenses incurred before your last day, and your employer can’t recover the difference. Front-loading FSA spending early in the year can be a smart move for this reason.
You may be offered COBRA continuation for the FSA. If you elect it, you can keep spending from the account for the rest of the plan year, but you’ll pay the full contribution amount plus a typical 2% administrative fee out of pocket. FSA COBRA ends at the close of the plan year even if your COBRA eligibility for medical insurance would otherwise last longer.
Ways to Use a Balance Before It Expires
The best defense is estimating your expenses conservatively at open enrollment. If you’re already sitting on a balance near the deadline, several categories often get overlooked:
- Over-the-counter items like pain relievers, allergy medicine, sleep aids, sunscreen, first-aid supplies, feminine hygiene products, and COVID-19 test kits, all eligible without a prescription.
- Vision and dental purchases such as new eyeglasses, prescription sunglasses, contact lenses and solution, and cleanings or fillings.
- Preventive care copays and coinsurance for flu shots, vaccines, and routine screenings, which stay reimbursable even when insurance covers part of the cost.
- Specialized services including acupuncture, chiropractic care, physical therapy, and mental health visits.
- Medical equipment like blood pressure monitors, blood sugar test kits, crutches, and orthopedic supports.
One limit to keep in mind: you cannot prepay for future services. FSA reimbursement requires that the expense was actually incurred during the plan year, meaning the service was performed or the item was purchased before the deadline.2Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans A December deposit for a January procedure won’t count.
The Military Reservist Exception
Federal law carves out one situation where the use-it-or-lose-it rule doesn’t apply. If you’re a military reservist called to active duty for more than 179 days or for an indefinite period, you can take a distribution of some or all of your remaining FSA balance during the period between your activation date and the last day you’d normally be able to seek reimbursement for that plan year.1Office of the Law Revision Counsel. 26 USC 125 – Cafeteria Plans This qualified reservist distribution doesn’t disqualify the plan and is designed specifically so service members called away don’t lose the money they set aside.