Yes, a flexible spending account generally follows a use it or lose it rule: any money left in your health FSA when the plan year ends is forfeited to your employer.1FSAFEDS. What Is the Use or Lose Rule? For 2026, you can contribute up to $3,400 to a health care FSA, and your employer may offer one of two cushions that soften the deadline: a two-and-a-half-month grace period, or a carryover of up to $680 into the next plan year.2FSAFEDS. Health Care FSA Both are optional. Your employer picks one, the other, or neither.
Why the Forfeiture Rule Exists
Federal tax law ties FSA dollars to a single plan year. Section 125 of the Internal Revenue Code, which governs the cafeteria plans that house FSAs, blocks these accounts from working as long-term savings vehicles.3Office of the Law Revision Counsel. 26 USC 125 – Cafeteria Plans Because your contributions skip both income tax and payroll tax, the IRS wants the money spent on current-year medical needs rather than stockpiled.1FSAFEDS. What Is the Use or Lose Rule?
Once your plan year closes and any grace period or run-out window ends, unspent dollars go back to your employer. There is no appeal, no hardship exception, and no waiver authority. Your employer cannot make one, and for federal employees the Office of Personnel Management cannot either.1FSAFEDS. What Is the Use or Lose Rule?
The Two Exceptions Your Employer Can Offer
The IRS lets employers build one of two safety valves into their FSA plan, but never both in the same plan year for the same account.4Internal Revenue Service. Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements Check your plan’s summary document to find out which, if any, applies to you.5Internal Revenue Service. IRS – Eligible Employees Can Use Tax-Free Dollars for Medical Expenses
Grace Period
A grace period gives you an extra two and a half months after the plan year ends to incur new eligible expenses using last year’s balance. For a calendar-year plan, that means you have until March 15 to schedule appointments, fill prescriptions, or buy qualifying supplies with your remaining funds.5Internal Revenue Service. IRS – Eligible Employees Can Use Tax-Free Dollars for Medical Expenses Anything still unspent when the grace period closes is forfeited.
One catch matters if you also want a Health Savings Account. The IRS treats any remaining general-purpose FSA balance during the grace period as non-high-deductible coverage, which disqualifies you from HSA contributions for that stretch, even if your FSA balance is already at zero.6U.S. Department of the Treasury. Treasury and IRS Issue Guidance on FSA Grace Period and HSA Eligibility The workaround is asking your employer to amend the FSA to be HSA-compatible during the grace period, or using a limited-purpose FSA that covers only dental and vision.7FSAFEDS. Limited Expense Health Care FSA
Carryover
Instead of a grace period, an employer can let you carry a portion of your unused health FSA balance into the next plan year. For 2026 plan years, the maximum carryover is $680.2FSAFEDS. Health Care FSA Anything above that ceiling is forfeited, and your employer can set a lower cap or skip carryover entirely.4Internal Revenue Service. Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements
Carryover has two advantages over the grace period. The carried funds are available for the entire following plan year rather than just two and a half months, and carryover doesn’t create the same HSA eligibility conflict. The IRS adjusts the ceiling for inflation each year: it was $660 for 2025 and $680 for 2026.8Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
Dependent Care FSAs Are Not the Same
If you have a dependent care FSA, the rules overlap with health FSAs but differ in one crucial way. The 2026 contribution limit is $7,500 per household, or $3,750 if you are married and filing separately, and a dependent care FSA can use the two-and-a-half-month grace period if your employer offers one.9FSAFEDS. Dependent Care FSA
But the carryover provision applies only to health care FSAs. Dependent care accounts cannot carry any balance forward.10OPM. What Is the IRS Rule on Carry Over? If your employer offers no grace period on the dependent care side, the standard use-it-or-lose-it deadline hits with no cushion at all. Careful budgeting matters more here, because childcare costs can swing unexpectedly if a provider changes rates or a child ages out of eligibility.
When an Expense Counts vs. When You File
Two dates matter for every FSA transaction, and mixing them up is one of the fastest ways to lose money. The date an expense is “incurred” is the date the service is actually provided, not the date you are billed, not the date you pay, and not the date you submit the claim. A dental cleaning on December 28 counts as a current-plan-year expense even if the bill arrives in February.8Internal Revenue Service. Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans
This creates a hard limit. You cannot prepay for services you will receive next year and charge them to this year’s FSA. The service itself must fall inside the plan year or any applicable grace period.
After the plan year (or grace period) closes, most employers give you a run-out period, often around 90 days, to submit paperwork for expenses you already incurred during the active window. You cannot use this time to schedule new appointments or buy new supplies. It is purely an administrative buffer for filing claims on services already received. Your plan document sets the exact length.
How to Spend Down a Remaining Balance
If you are watching a balance shrink toward the deadline, you have more options than most people realize. Over-the-counter medications like pain relievers, antacids, and antibiotic ointments are FSA-eligible without a prescription, a change that became permanent in 2020.11FSAFEDS. Eligible Health Care FSA Expenses
Beyond the medicine aisle, FSA funds cover blood pressure monitors, first-aid kits, reading glasses, sunscreen, and contact lens solution. Larger purchases such as CPAP supplies, hearing aid batteries, and home health equipment also qualify. If you’ve been putting off an eye exam, new prescription lenses, or a dental cleaning, the end of the plan year is when to book them.
The most expensive mistake isn’t overfunding the FSA. It’s forgetting to check the balance until January. Most administrators have apps or portals that show your real-time balance, and setting a calendar reminder in October gives you enough runway to schedule appointments and make purchases before the deadline lands.
What Happens If You Leave Your Job
An FSA does not follow you to a new employer. When you leave, your ability to incur new FSA-eligible expenses generally ends on your last day, and any remaining balance is forfeited.12HealthCare.gov. Using a Flexible Spending Account (FSA)
One rule works strongly in your favor, though. The uniform coverage rule requires your employer to make your full annual FSA election available from day one of the plan year. If you elected $3,400 for the year and leave in April after contributing only $1,100 through payroll, you have still had access to the full $3,400 for reimbursements since January 1. Spend $2,800 on eligible expenses before you go, and your employer cannot recover the $1,700 gap between what you spent and what you contributed. That’s the employer’s loss.
If you know you’re leaving early in the plan year, front-loading your medical spending can pull real value out of the account.
After you leave, you may be offered COBRA continuation for your health FSA, which lets you keep incurring eligible expenses through the end of the original plan year. COBRA on an FSA only makes sense when your remaining balance exceeds what you’d pay in premiums (the full contribution cost plus a 2% administrative fee). If you have already spent more than you contributed, the employer is not required to offer FSA COBRA at all, because there is no positive balance left to continue. Either way, the standard run-out period is still available to file claims for eligible expenses you incurred before your last day.