Del BaileyUnder the FSA use it or lose it rule, money left in a health flexible spending account when the plan year ends is generally forfeited. Your employer may soften that with a grace period of up to 2ยฝ months or a carryover, capped by the IRS at $680 for 2026, but never both. Check which one your plan offers before December.
Published October 14, 2026.
What happens to FSA money at end of year
I have kept a household budget for years, and the FSA is the line I watch hardest every fall. It is the one account where doing nothing costs you money. Most people do not lose much through a bad decision. They lose it by forgetting until the week after the deadline. So look at your balance now, while there is still time to book the eye exam.
HealthCare.gov puts the rule in one line: at the end of the year or grace period, you lose any money left over in your FSA. IRS Publication 969 calls FSAs use-it-or-lose-it plans, meaning amounts left at year end generally cannot carry over. The exceptions are the two employer options below. HealthCare.gov adds that offering either one is optional.
How the FSA use it or lose it rule works
An FSA is funded through salary reduction from your paycheck. Publication 969 explains a feature that works in your favor early in the year. Under the uniform coverage rule, you can receive your full elected amount at any time during the coverage period, even before you have contributed that much.
The flip side comes at the end. Whatever you elected and did not spend is at risk. That is why HealthCare.gov advises not contributing more than you expect to spend within the year. Here is how the three possible plan setups play out:
| Your plan offers | What happens to leftover money | Source |
|---|---|---|
| Neither option | Money left at the end of the plan year is forfeited | IRS Pub. 969; HealthCare.gov |
| Grace period | You can spend last year’s balance on expenses incurred up to 2ยฝ months after the plan year ends | IRS Pub. 969 |
| Carryover | Up to the IRS cap ($680 for 2026, $660 for 2025) rolls into next year; anything above it is forfeited | IRS Pub. 969; IRS 2026 adjustments |
FSA use it or lose it deadlines
Your deadline depends on which column your plan sits in. If it has no grace period and no carryover, the plan year end is the hard stop. For a calendar-year plan, that is December 31. Look in your benefits portal or plan summary for the exact dates, including any separate deadline to submit claims.
FSA grace period
Publication 969 lets a plan allow a grace period of up to 2ยฝ months after the plan year ends. Expenses you incur during that window can be paid from the prior year’s balance. For a plan year ending December 31, the longest possible window runs to March 15. Your plan may choose a shorter one.
FSA carryover
Instead of a grace period, a plan may let you carry unused money into the next plan year. Publication 969 sets the 2025 cap at $660. In its 2026 inflation adjustments, the IRS lists the maximum carryover as $680, up $20. A plan can set a lower limit. Amounts above the limit are forfeited, and Publication 969 says a plan with a carryover cannot also offer a grace period.
FSA contribution limit
The IRS caps what you can put in through salary reduction. For tax years beginning in 2026, the health FSA limit is $3,400, up $100 from 2025, according to the IRS announcement of Revenue Procedure 2025-32. Publication 969 lists the 2025 limit as $3,300. HealthCare.gov notes that a spouse can contribute up to the same limit through their own employer.
Open enrollment is the time to set next year’s number. A simple way to size it is to add up the medical costs you can predict. Think prescriptions, dental visits, glasses or contacts, and your deductible. Elect close to that total rather than the maximum.
What can I buy with my FSA
Your plan administrator decides what it reimburses, within IRS rules. HealthCare.gov says FSA funds can pay deductibles, copayments and prescription medications. Publication 969 adds over-the-counter medicine, whether or not it is prescribed, and menstrual care products. IRS Publication 502, the guide to medical expenses, describes many other items:
- Eyeglasses and contact lenses needed for medical reasons
- Dental care, including cleanings, fillings and braces
- Hearing aids and their batteries
- Acupuncture and chiropractic care
- Crutches and medical supplies such as bandages
One caution. Publication 502 is written for the medical expense tax deduction, and FSA rules differ in places. Over-the-counter medicine is the clearest example. Pub. 502 excludes it for the deduction, while Pub. 969 allows it for an FSA. When in doubt, ask your administrator before you buy.
How to spend FSA money before the deadline
Start with the balance, then match it to things you were going to buy anyway. Every item below appears in IRS Publication 502 or Publication 969:
- Book the dental cleaning or filling you have been putting off.
- Order the new eyeglasses or a supply of contact lenses.
- Restock over-the-counter medicine, bandages and menstrual care products.
- Buy hearing aid batteries if someone in the house uses them.
Keep every receipt in one folder until the claim is paid. Then lower next year’s election if you had money left this year.
Can you use FSA for gym membership
Generally, no. Publication 502 says you cannot include health club dues or amounts paid to improve your general health. The same rule keeps out vitamins and supplements taken for ordinary good health. It also generally keeps out cosmetic surgery. Weight-loss programs count only as treatment for a specific disease diagnosed by a physician. Insurance premiums are out too. Publication 969 says an FSA cannot pay them.
FSA vs HSA
The two accounts sound alike, but the year-end rule is the big difference. For a health savings account, Publication 969 says amounts left at the end of the year are generally carried over to the next year. The contributions stay in your account until you use them. An HSA is also portable, so it stays with you if you change employers or leave the work force.
The catch is eligibility. To contribute to an HSA, Publication 969 says you must be covered by a high deductible health plan. If your health plan is not an HDHP, you cannot put money into an HSA. If you are choosing plans during open enrollment, that trade-off belongs on the list.
FSA use it or lose it FAQ
Is FSA use it or lose it every year?
Yes. IRS Publication 969 describes health FSAs as use-it-or-lose-it plans, so the rule applies at the end of every plan year. The only relief is a grace period of up to 2ยฝ months or a carryover of up to $680 for 2026. Your employer chooses one, or neither.
When is the FSA deadline?
It is the last day of your plan year, or December 31 for a calendar-year plan. With a grace period, Publication 969 allows spending for up to 2ยฝ months more, so through March 15 at most for a calendar-year plan. Check your plan documents for any separate deadline to submit claims.
Does FSA use it or lose it apply to an HSA?
No. Publication 969 says amounts left in an HSA at the end of the year are generally carried over, and the account stays with you if you change jobs. Contributing to an HSA requires coverage under a high deductible health plan.
Can you use FSA money for over-the-counter medicine?
Yes. IRS Publication 969 says over-the-counter medicine counts for a health FSA whether or not it is prescribed, and so do menstrual care products. That is more generous than the tax deduction. Publication 502 says that, except for insulin, you cannot deduct a drug that is not prescribed.
This article is for general information only and is not financial or tax advice. Talk to a qualified tax professional or your benefits administrator about your own situation.
Amanda Dixon
