You contributed money to your FSA all year. Payday after payday, pre-tax dollars were deducted from your paycheck and set aside. But now your plan year is ending and you still have a balance. What actually happens to that money?
The "Use It or Lose It" Rule
The IRS requires that FSA funds be used for eligible expenses incurred during the plan year (or applicable grace period). Any funds not used within the allowed timeframe are forfeited. This is the fundamental rule that governs FSAs and the reason they require more careful planning than HSAs.
Where Does Forfeited FSA Money Go?
This is the part that stings: your forfeited FSA money goes back to your employer. Not to you, not to a charity, not to the government — to the entity that employed you.
Employers can use forfeited FSA funds to:
- Offset the costs of administering the FSA plan
- Reduce future employee contributions
- Subsidize other employee benefits
- In some cases, simply absorb it as a financial gain
In 2025, American workers forfeited an estimated $4.5 billion in FSA funds. The average forfeiture per person was $441. That's money people earned and never got to use.
The Two Safety Nets
The IRS allows employers to offer one of two protections against total forfeiture. Not all employers offer them, and employers can only offer one — not both.
Option 1: Carryover ($660 in 2026)
Your employer may allow you to carry over up to $660 of unused FSA funds into the next plan year. This money is available immediately and doesn't count against your new contribution limit.
- Only the first $660 is protected — any amount above that is forfeited.
- The carryover is automatic; you don't need to do anything special.
- If you have $1,500 left, you carry over $660 and lose $840.
Option 2: Grace Period (2.5 extra months)
Instead of carryover, your employer may offer a grace period — typically 2.5 months after the plan year ends (March 15 for calendar-year plans). During this period, you can spend your entire remaining balance on eligible expenses.
- No dollar cap — the full balance carries into the grace period.
- But if you still have a balance after the grace period, it's all forfeited.
- Expenses must be incurred during the grace period, not just submitted.
Option 3: Neither
Some employers offer neither carryover nor grace period. In this case, every dollar not spent by the last day of your plan year is gone. If your employer falls in this category, you need to be especially vigilant about tracking your spending.
How to Find Out What Your Plan Offers
- Check your benefits portal. Most employers list FSA plan details in their benefits enrollment system.
- Read your Summary Plan Description (SPD). This document (required by law) spells out all plan rules including carryover or grace period provisions.
- Ask HR directly. A quick email to your benefits administrator: "Does our FSA plan offer carryover or a grace period?"
- Check your FSA administrator's website. Companies like WageWorks, HealthEquity, or your employer's platform typically display this information.
Real Examples of Forfeiture
| Scenario | Balance Left | Plan Type | Amount Forfeited |
|---|---|---|---|
| Sara | $500 | $660 carryover | $0 (all carries over) |
| Mike | $1,200 | $660 carryover | $540 |
| Lisa | $800 | Grace period | $0 if she spends by March 15, $800 if she doesn't |
| Tom | $2,000 | No protection | $2,000 |
Last-Minute Spending Ideas
If your deadline is approaching and you still have a balance, here are smart ways to spend it down fast:
- Schedule dental work: Cleanings, fillings, and night guards are all FSA-eligible.
- Buy prescription eyeglasses or sunglasses: One pair can run $200-500.
- Stock up on OTC medications: Allergy meds, pain relievers, cold medicine, sleep aids.
- Buy sunscreen in bulk: All SPF 15+ sunscreen is FSA-eligible.
- Get a new pair of contacts: Annual supply of contacts can be $200-600.
- Consider LASIK: If you've been thinking about it, LASIK is fully FSA-eligible and can use your entire balance.
- Buy first aid supplies: Kits, bandages, thermometers, blood pressure monitors.
The Best Defense: Track Your Balance Year-Round
Forfeiture usually happens because people forget about their FSA until it's too late. The fix is simple: know your balance and have a plan.
SpendRebel tracks your FSA balance in real time, calculates exactly how much is at risk of forfeiture, and sends escalating reminders so you're never caught off guard. It takes 2 minutes to set up and it's completely free. Start now — before your balance becomes your employer's windfall.