Health Insurance
FSA Use-It-or-Lose-It Rules in 2026: What Happens to Unspent Funds
By the PolicyZen Team · Updated March 2026 · 7 min read
Every year, Americans forfeit an estimated $3 billion in unspent FSA funds — money they set aside tax-free for healthcare that they simply forgot to spend. The IRS use-it-or-lose-it rule is real, but there are two exceptions most people don't fully understand: the grace period and the rollover limit. Knowing which one your employer offers can save you hundreds.
The IRS use-it-or-lose-it rule requires FSA funds to be used within the plan year. Employers may (but are not required to) offer one of two relief options: a 2.5-month grace period (until March 15) OR a rollover of up to $660 (2026 limit) into the next year. They cannot offer both — it's one or the other, or neither.
The Three Scenarios
- No relief (strict use-it-or-lose-it): All unspent funds are forfeited on December 31. You lose every dollar left in your FSA if you don't spend it before year-end. Some employers with this setup offer December FSA spending deadlines — confirm with your HR department.
- Grace period (March 15 extension): You have until March 15 of the following year to spend the prior year's FSA balance. Expenses incurred between January 1 and March 15 can be applied to the previous plan year's balance. After March 15, any remainder is forfeited.
- Rollover option (up to $660 in 2026): Up to $660 of unspent funds rolls over automatically to the next plan year — no action required. Amounts above $660 are still forfeited. The rollover limit is indexed to inflation and adjusts annually.
2026 FSA Contribution Limit
The IRS health FSA contribution limit for 2026 is $3,300 per employee (indexed annually). Employers may contribute additional amounts. If you're enrolled in an HSA-eligible HDHP, a standard health FSA disqualifies you from HSA contributions — you'd need a "limited-purpose FSA" (dental/vision only) instead.
Leaving your job mid-year with FSA money spent but not yet earned is a real problem. FSAs are front-loaded — your full annual election is available on day 1, but you pay it back through payroll deductions over the year. If you leave in March having spent your full $3,300 but only contributed $800, the difference is generally not recoverable by the employer. Conversely, if you leave with money still in the FSA and haven't spent it, it's forfeited — you lose the unspent balance AND the payroll deductions already made.
What to Spend FSA Money On Before Year-End
- Prescription eyeglasses or contact lenses (major FSA spending category)
- Dental work: cleanings, fillings, orthodontia down payments
- Over-the-counter medications (no prescription required since CARES Act 2020)
- Feminine care products
- First aid kits, blood pressure monitors, thermometers
- Sunscreen (SPF 15+)
- Mental health copays and therapy
- Acupuncture, chiropractic care
Check your FSA balance in October — not December. Scheduling eye exams, dental appointments, and filling prescriptions in October/November gives you time without the end-of-year scramble.
Frequently Asked Questions
What happens to unused FSA funds at the end of the year?
Under the use-it-or-lose-it rule, unspent FSA funds are forfeited at the end of the plan year. However, there are two employer-optional exceptions: a grace period of up to 2.5 months to spend remaining funds, or a rollover of up to $660 (2026 limit) into the following year. Your employer chooses which option — if any — to offer; not all plans include either.
What is the FSA contribution limit for 2026?
The health FSA contribution limit for 2026 is $3,300 per employee. This is a pre-tax limit — you elect how much to contribute during open enrollment and it reduces your taxable income. Dependent care FSAs have a separate limit of $5,000 per household.
What can I spend FSA money on before year-end?
Eligible expenses include prescription medications, over-the-counter medications (no prescription required since 2020), glasses and contact lenses, dental work, medical copays and deductibles, menstrual care products, sunscreen, and many other health-related items. The IRS Publication 502 lists all eligible expenses. FSA funds cannot be used for insurance premiums.
Can I change my FSA contribution mid-year?
Generally no — FSA elections are locked for the plan year unless you have a qualifying life event (marriage, divorce, birth of a child, or change in employment). This makes accurate contribution planning during open enrollment important; over-contributing risks forfeiture if you can't spend the full amount.
Is an FSA or HSA better for saving on healthcare costs?
HSAs are more flexible — funds roll over indefinitely, can be invested, and are portable if you change jobs. But HSAs require enrollment in a high-deductible health plan (HDHP). FSAs are available with any health plan type and offer immediate access to the full annual election on day one. If you're eligible for both (rare), the HSA is generally the stronger long-term savings vehicle.
Know Your FSA Before You Forfeit It
Upload your FSA plan documents to PolicyZen. Know your deadline, your rollover option, and which expenses are eligible before year-end.
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