Short answer: FSA funds are generally “use it or lose it,” but employers may offer either a grace period or allow up to 20% of the annual contribution limit (up to $660 for 2026) to carry over into the next plan year.
Health care FSAs are subject to a “use it or lose it” rule, meaning unused funds are forfeited at the end of the plan year unless the employer adopts one of two optional IRS-approved relief features.
An employer may allow a grace period of up to 2.5 additional months after the end of the plan year to incur expenses and use remaining FSA funds.
Alternatively, an employer may allow a carryover of unused funds into the next plan year. For 2026, the maximum carryover amount is up to 20% of the annual FSA contribution limit, which equals $660.
Employers may offer either a grace period or a carryover, but not both. Some employers choose not to offer either option, in which case all unused funds are forfeited at the end of the plan year.
Because these features are optional and plan-specific, employees should review their FSA plan documents to understand which option, if any, applies.
Sources
- Internal Revenue Service, Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans: https://www.irs.gov/publications/p969
-
Internal Revenue Code, Section 125: https://www.law.cornell.edu/uscode/text/26/125
Content history
Originally published: March 25, 2025
Last reviewed: January 25, 2026