FSA Carryover Rules and Limits: 2026 Amount, HSA Impact, and Job Changes

Health FSA carryover rules let you roll up to $680 of unused funds from the 2026 plan year into 2027, but only if your employer builds the carryover into its plan. Anything above that cap is forfeited, and carrying over any balance in a general-purpose health FSA blocks you from contributing to a health savings account the following year. The carryover is also mutually exclusive with a grace period, so your employer picks one or the other.

How the Carryover Works

The carryover is not automatic. Your employer has to write it into the cafeteria plan document governed by Internal Revenue Code Section 125, and many employers simply don’t offer it.¹ If it isn’t in the plan, every dollar left in your account at year-end is gone. Check your Summary Plan Description or ask your benefits administrator directly.

Employers that offer flexibility must pick one option: a carryover or a grace period. They cannot offer both for the same FSA in the same plan year. The IRS made this explicit when it introduced the carryover, requiring any employer switching from a grace period to a carryover to formally amend the plan and drop the grace period.²

2026 Carryover and Contribution Limits

For the 2026 plan year, the IRS sets the maximum health FSA contribution at $3,400 through payroll deductions. If your plan allows carryover, up to $680 of unused funds can roll into the 2027 plan year.³ Any balance above $680 at the end of the plan year, after the run-out period closes, is forfeited.

Both figures adjust for inflation each year. The 2025 limits were $3,300 for contributions and $660 for carryover.⁴ Your employer can also set a lower carryover cap than the IRS maximum, so read your specific plan terms rather than assuming you get the full $680.

Forfeited funds stay with the plan. The IRS prohibits employers from cashing out unused health FSA amounts or converting them into other benefits for the employee.² Employers typically use forfeited amounts to offset administrative costs or reduce future contribution requirements, but the money does not come back to you.

Carryover Does Not Reduce Your Contribution Room

Rolled-over money sits on top of your new annual election, not inside it. If you carry $680 into 2026 and elect the full $3,400 contribution, your total available balance for the year is $4,080. The carryover exists outside the contribution cap.³

If you consistently underspend by a small amount, carrying that balance forward and contributing the maximum in the next year gives you a meaningful cushion for unexpected costs.

Grace Period vs. Carryover

Employers that don’t offer a carryover may instead provide a grace period of up to two and a half months after the plan year ends. For a calendar-year plan, that window runs through March 15, giving you extra time to spend down your prior-year balance on eligible expenses.⁵

A grace period extends your spending deadline; a carryover preserves a dollar amount. With a grace period, your entire remaining balance is available for expenses incurred during that window, not just $680. Once March 15 passes, though, every unspent dollar is gone. There’s no safety net below a threshold the way a carryover works.

A grace period rewards people who can front-load medical spending early in the new year, whether that means a February dental cleaning or a prescription stock-up. A carryover rewards people who want a buffer without a tight deadline.

Don’t Confuse the Run-Out Period With Carryover

The run-out period is a separate thing. It gives you extra time to submit paperwork for expenses you already incurred during the plan year or grace period. You cannot schedule new appointments or buy new supplies during the run-out period and expect reimbursement.

Most employers set the run-out period at around 90 days after the plan year ends, though the exact length varies. If you had a doctor’s visit on December 28 but didn’t submit the claim until February, the run-out period is what saves you. Miss it, and the reimbursement is denied even if the expense was perfectly legitimate. Keep your receipts and Explanation of Benefits forms organized through the year so you’re not scrambling at the deadline.

How Carryover Affects HSA Eligibility

This is where the carryover trips people up, and the consequences are serious. If you carry over any balance in a general-purpose health FSA into the new plan year, you are ineligible to contribute to a health savings account for that entire year.⁴ It doesn’t matter if the carryover is $50 or $680. Any general-purpose FSA balance blocks HSA contributions.

The same issue arises with grace periods. If you’re covered by a general-purpose health FSA during a grace period, you can only avoid the HSA conflict if your FSA balance at the end of the prior plan year was zero.⁴

Two workarounds exist if you’re switching to a high-deductible health plan with an HSA:

Some employers allow a general-purpose FSA carryover to automatically convert into a limited-purpose FSA that only covers dental and vision expenses. A limited-purpose FSA does not block HSA eligibility.
If your plan permits it, you can decline the carryover before the new plan year begins, forfeiting the leftover balance to preserve your HSA eligibility.

If you’re considering a move to an HSA-compatible plan during open enrollment, figure out your expected FSA balance first. Accidentally carrying over even a small amount into a general-purpose FSA can cost you an entire year of HSA contributions.

Dependent Care FSAs Have No Carryover

Dependent care FSAs operate under different rules than health FSAs. The carryover provision does not apply. If your plan offers a grace period, you may have until March 15 to spend down a remaining dependent care balance, but there is no option to roll unused funds into the next year.⁶ The IRS carryover modification in Notice 2013-71 was written exclusively for health FSAs.²

The dependent care FSA contribution limit for 2026 is $5,000 per household, or $2,500 if married filing separately. Because there’s no carryover cushion, accurate forecasting of child care or elder care costs matters more with these accounts. Overestimating by a few hundred dollars means losing that money outright.

What Happens to Carryover If You Leave a Job

Leaving your employer, whether you quit, get laid off, or retire, generally ends your FSA access immediately. You cannot use FSA funds for expenses incurred after your last day of employment unless you elect COBRA continuation coverage.⁴ Any remaining balance, including funds that might otherwise have carried over, is forfeited back to the plan.

You typically still have a run-out window, often 60 to 90 days, to submit claims for expenses incurred while employed. If you know you’re leaving, front-loading eligible spending before your termination date is the most practical way to avoid losing money. The uniform coverage rule helps here: your full annual election amount is available from day one, even if you’ve contributed only a fraction of it through payroll deductions, and your employer cannot ask for the difference back if you leave early.²

1
Office of the Law Revision Counsel. 26 USC 125 – Cafeteria Plans
2
Internal Revenue Service. Notice 2013-71 – Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements
3
Internal Revenue Service. Revenue Procedure 2025-32
4
Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
5
U.S. Office of Personnel Management. Is There a Grace Period for FSAFEDS? What Does That Mean?
6
FSAFEDS. Dependent Care FSA Carryover