How Does FSA Carryover Work? Limits, HSA Impact, and Timing

FSA carryover lets you move a limited amount of unused health care Flexible Spending Account money from one plan year into the next, instead of forfeiting it under the traditional use-or-lose rule. For plan years beginning in 2026, the maximum carryover is $680.¹ But carryover isn’t automatic. Your employer has to opt in, the cap can be set lower than the IRS ceiling, and choosing to carry funds forward can quietly disqualify you from a Health Savings Account the following year.

How Much You Can Carry Over

The IRS pegs the carryover ceiling at 20 percent of the maximum annual FSA salary reduction for that tax year.² For 2026, the FSA contribution limit is $3,400 and the carryover cap is $680.¹ In 2025, those figures were $3,300 and $660. Any balance above the carryover ceiling at plan year-end is forfeited.³

Your employer can set a lower cap. The IRS number is a ceiling, not a floor, so a plan might allow only $500 or $400 to roll forward, or require a minimum balance (such as $25) to qualify at all.³ Your Summary Plan Description spells out the exact number.

Carryover Doesn’t Reduce Your New-Year Election

Carried funds sit on top of your new annual contribution. Rolling over $680 doesn’t shrink the $3,400 you can elect for the new year.³ You could start 2027 with as much as $4,080 available for eligible expenses.

Employer contributions (sometimes called flex credits) also don’t count against the carryover limit. Those employer contributions are generally capped at $500 per plan year for the FSA to keep its status as an excepted benefit. Your total spendable balance in a given year is the carryover, plus your new election, plus any employer contribution.

Whether Your Plan Offers It Is Up to Your Employer

Carryover is optional. Under IRS Notice 2013-71, employers may amend their cafeteria plan to allow it, but nothing requires them to.⁴ To add the feature, the employer has to formally amend the written plan document before the plan year from which funds would carry over ends.

Check your Summary Plan Description to confirm whether carryover applies and at what limit. If it isn’t mentioned, you’re on the standard use-or-lose rule and any unspent funds are forfeited at year-end (or at the end of a grace period, if the plan uses one instead).

Not every FSA runs on the calendar year. Some employers use a fiscal plan year, such as July 1 through June 30. Carryover rules work the same way — the deadlines simply track your plan year rather than January 1.⁴

Carryover or Grace Period, Not Both

A health FSA can offer carryover or a grace period, never both at the same time.⁴ The two approaches solve the same problem in different ways.

Carryover moves up to $680 of unused funds into the full next plan year. You can spend those dollars on eligible expenses any time during that year. Anything above $680 is forfeited.

A grace period extends the current plan year by up to 2.5 months (through March 15 for a calendar-year plan). During that window, your entire remaining balance — not just $680 — is available for new eligible expenses. Once the grace period ends, whatever is left is forfeited.⁵

Grace periods give you access to more money for a shorter window. Carryover gives you access to less money for a longer one. The mutual-exclusivity rule is per account type, so a plan can still use a grace period for a dependent care FSA while offering carryover on the health FSA.

When Carried Funds Actually Show Up

Most plans include a run-out period after year-end. This is a window, commonly around 90 days (through March 31 for a calendar-year plan), during which you can still submit claims for expenses incurred in the prior plan year. Only after the run-out period closes does the remaining eligible balance, up to the carryover cap, transfer into the new plan year account.

Most administrators spend carried-over dollars before touching the new year’s contributions, drawing down the older money first. Timing and spending order vary, so check your plan portal during the transition to confirm the balance moved correctly.

Carryover balances can stack across years. If you roll $400 into 2026 and don’t spend it, that $400 can roll into 2027 alongside any new unused funds, up to the $680 cap. The IRS doesn’t limit how many years funds can keep carrying forward, though your employer’s plan may.

Carryover Can Cost You Your HSA

This is the most expensive mistake FSA participants make. If you carry any balance forward in a general-purpose health FSA, you’re disqualified from contributing to a Health Savings Account for the entire following plan year — even after you’ve spent the carryover down to zero.⁶ The IRS treats the carryover as continued FSA coverage, which is incompatible with HSA eligibility under Section 223.³

Two paths preserve HSA eligibility:

Decline the carryover, if your cafeteria plan allows waiving it, and forfeit the unused balance to keep HSA eligibility clean.⁶
Have the unused funds carry over into an HSA-compatible limited-purpose FSA, which covers only dental and vision. That keeps you eligible to contribute to an HSA.⁶

If you’re considering switching to a high-deductible health plan with an HSA, coordinate your FSA elections carefully during open enrollment. The wrong combination can cost thousands in lost HSA tax advantages.

Dependent Care FSAs Are Not Included

Carryover applies only to health care FSAs. Dependent care FSAs, used for childcare and elder care expenses, aren’t eligible for carryover under IRS rules.⁷ Any relief on dependent care balances comes through a grace period of up to 2.5 months, if the plan offers one. Whatever remains after that is forfeited.

What Happens if You Leave Your Job

Unused FSA balances, including carryover, are generally forfeited when you leave your employer, unless you elect COBRA continuation coverage.⁴ Without COBRA, you can only be reimbursed for eligible expenses incurred before your termination date, submitted during the plan’s run-out period.

Under COBRA, you can keep using your FSA — carryover included — through the end of the plan year in which the qualifying event happened. For the carryover amount specifically, a qualified beneficiary may retain access into the following plan year as well, with no additional COBRA premium charged for the carryover portion alone.

If a job change is coming, try to spend the balance on eligible expenses before your last day. FSA funds don’t transfer between employers, and paying COBRA premiums to preserve a small balance rarely pencils out.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Internal Revenue Service. Notice 2020-33, Modification of Permissive Carryover Rule for Health FSAs
3
Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
4
Internal Revenue Service. Notice 2013-71, Modification of Use-or-Lose Rule for Health FSAs
5
HealthCare.gov. Using a Flexible Spending Account (FSA)
6
Internal Revenue Service. Information Letter 2014-13-005, Health FSA Carryovers and HSA Eligibility
7
FSAFEDS. What Is the Use or Lose Rule?