You cannot get an FSA refund in cash. The IRS prohibits flexible spending account balances from being paid out as taxable or nontaxable compensation, so any money left in your account at the end of the plan year is forfeited to your employer under the “use-it-or-lose-it” rule. What you can do is spend the balance down on eligible expenses before it disappears, and depending on your plan, you may have a grace period or a limited carryover that gives you extra time or preserves a small portion of the funds.1Internal Revenue Service. IRS Notice 2013-71 – Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements
Why Cash Refunds Aren’t Allowed
FSA contributions skip federal income tax, state income tax, and FICA on the way in. That triple tax break is the entire reason the account exists. Paying unused money back to you as cash would let you keep the tax break on income you never actually spent on medical or dependent care, which the IRS will not permit. The cafeteria plan rules explicitly bar unused FSA amounts from being “cashed out or converted to any other taxable or nontaxable benefit.”
The money cannot be transferred to a personal savings account, rolled into an IRA, or added to a paycheck. Forfeited funds revert to your employer, which may use them to offset the administrative cost of running the FSA program or to reduce premiums for plan participants.
Options That Keep the Money in Play
The use-it-or-lose-it rule is the default, but the IRS allows employers to adopt one of two softening provisions. Your plan may offer one, or neither. It cannot offer both for the same type of FSA.2Internal Revenue Service. IRS News Release – Eligible Employees Can Use Tax-free Dollars for Medical Expenses Check your summary plan description to see which one, if either, applies to you.
Grace Period
A grace period gives you up to two and a half extra months after the plan year ends to incur eligible expenses using the leftover balance. For a calendar-year plan ending December 31, that pushes your deadline to March 15. Any balance still sitting there after March 15 is forfeited. This is a time extension for spending, not a rollover of the funds into the new plan year.
Carryover
A carryover rolls a limited dollar amount of unused health FSA funds into the next plan year. For 2026 plan years, the IRS caps the carryover at $680.3Internal Revenue Service. Rev. Proc. 2025-32 Anything above $680 is forfeited. Unlike the grace period, carried-over money merges with your new election and can be spent anytime during the new plan year. Your employer can also set a carryover cap lower than the IRS maximum.
Run-Out Period
Separate from either option above, most plans give you a “run-out period” after the plan year ends to submit claims for expenses you already incurred during the plan year. The run-out does not extend the window to incur new expenses; it only extends the window to file the paperwork for ones that already happened. Dates vary by plan.
None of these options converts your balance to cash. Each one simply gives you more opportunity to use the money on eligible expenses before it is lost.
What Happens If You Leave Your Job
FSA coverage ends on your separation date, and any remaining balance is generally forfeited. The run-out period still lets you submit claims for expenses you incurred while employed, but you cannot use the FSA for expenses incurred after your last day.
One quirk works in your favor if you leave early in the plan year. Your full annual health FSA election is available from the first day of the year, even if you have only made a few payroll contributions. If you elected $3,400 and used all of it on eligible expenses by March while contributing only $850 through payroll, you keep the full $3,400 in reimbursements. Your employer cannot claw back the difference. If you leave late in the year with a large unspent balance, the asymmetry runs the other direction and the money is gone.
COBRA for a Health FSA
Health care FSAs are considered group health plans, so they are subject to COBRA continuation rules. If you leave your job with a positive health FSA balance, you can elect COBRA to keep using that balance for qualified medical expenses through the end of the plan year.4U.S. Department of Labor. Continuation of Health Coverage (COBRA) You pay the full cost of coverage, up to 102% of the plan cost, which means you are paying premiums to access your own pre-tax money. It only makes financial sense when your remaining balance substantially exceeds the premiums you would owe for the rest of the plan year.
Dependent care FSAs are not group health plans, so COBRA does not apply. Unused dependent care funds at separation are forfeited unless your plan document provides otherwise.
Spending Down a Balance Before It Expires
An FSA reimburses you for eligible expenses you have already paid. You pay a provider, then submit a claim to your plan’s third-party administrator with documentation showing the date of service, what was provided, and the amount. For medical expenses, the explanation of benefits from your insurance carrier is usually the cleanest proof. Reimbursement arrives by direct deposit or check.
The timing rule trips people up more than the paperwork. An expense counts against your FSA based on when the service was provided, not when you were billed or when you paid. A physical on December 28 falls in the current plan year even if the bill arrives in February. Orthodontia is a notable exception: many plans allow the prepayment itself to count as the date the expense is incurred, since orthodontists commonly require payment before treatment begins.
Dependent care FSAs work differently from health FSAs on availability. You can only be reimbursed up to the amount actually contributed through payroll deductions to date, not your full annual election.
If your plan includes an FSA debit card, use it. The card eliminates the reimbursement step for point-of-sale purchases at pharmacies and medical providers, which makes it much easier to spend down a balance in the final weeks of a plan year without fronting cash and filing paperwork later. Eligible over-the-counter items like contact lens solution and first-aid supplies are a reasonable fallback if you cannot schedule medical care in time.
Documentation matters. If a receipt shows only a dollar amount without a date or description of the service, the administrator will deny the claim. You can usually resubmit with proper documentation, but the back-and-forth eats into your deadline. If your plan reimburses an expense that is never properly substantiated, the IRS treats the entire unsubstantiated amount as taxable income.5Thomson Reuters. IRS Clarifies Reimbursement of Unsubstantiated Medical Expenses Through FSA Included in Gross Income
Avoiding the Problem Next Year
The best defense against forfeiture is an accurate election in the first place. Review the past year’s medical and dependent care spending: copays, prescriptions, dental work, glasses or contacts, and any recurring expenses. Factor in planned elective procedures like LASIK or orthodontia. When in doubt, elect conservatively. Leaving a few hundred dollars of tax savings on the table stings less than forfeiting a few hundred dollars of contributions.
If the use-it-or-lose-it rule frustrates you, consider whether a health savings account is a better fit. HSA funds roll over indefinitely, there is no forfeiture, and the money stays yours even if you change jobs or retire. The trade-off is that HSAs require enrollment in a high-deductible health plan, and you cannot contribute to both a general-purpose health FSA and an HSA in the same year. You can pair an HSA with a “limited-purpose” FSA that covers only dental and vision expenses. If your employer offers both options, running the numbers side-by-side during open enrollment is worth the fifteen minutes.