● Money & small business
What happens to unused FSA money: the year-end deadline, grace period and carryover
Most health FSA plan years end December 31, which means the "use it or lose it" deadline that decides whether your leftover balance disappears is coming up. What actually happens to that money depends entirely on a choice your employer already made when it set up the plan -- you don't get to pick. Here is the default rule, the two things an employer can optionally add instead, and how to find out which one applies to you.
The default rule: forfeiture
A health FSA is a cafeteria plan benefit, and cafeteria plans aren't allowed to let you defer compensation from one year to the next (Prop. Treas. Reg. §§ 1.125-1 and 1.125-2). The baseline consequence, commonly called "use it or lose it," is that whatever is left in your health FSA unspent at the end of the plan year is forfeited. Unless your employer's plan document adds one of the two relief provisions below, that's the whole rule: spend it by the last day of the plan year, or lose it.
Option 1: the grace period (up to 2.5 extra months)
IRS Notice 2005-42 lets an employer amend its cafeteria plan to add a grace period right after the plan year ends. During the grace period, you can keep incurring new eligible expenses and pay them from last year's leftover balance, as if you'd incurred them during the plan year itself. The grace period can't run past "the fifteenth day of the third calendar month" after the plan year ends -- for a calendar-year plan that's March 15. There's no dollar cap on a grace period: your entire leftover balance stays usable, just for a shorter extra window instead of a limited amount. Whatever's still unused when the grace period ends is then forfeited, with no further carryover.
Option 2: the carryover (up to a dollar limit, no extra time)
IRS Notice 2013-71 lets an employer instead allow unused health FSA money to roll into the next plan year, to be spent any time during that whole year -- not just the first couple of months. The amount that can carry over is capped, and the cap rises most years: Notice 2020-33 set it at 20% of that year's FSA salary-reduction limit, rounded to the nearest $10. The dollar limits the IRS has actually published:
| Plan year beginning in | FSA salary-reduction limit | Maximum carryover | Source |
|---|---|---|---|
| 2024 | $3,200 | $640 | Rev. Proc. 2023-34, §3.16 |
| 2025 | $3,300 | $660 | Rev. Proc. 2024-40, §2.16 |
| 2026 | $3,400 | $680 | Rev. Proc. 2025-32, §4.15 |
| 2027 | Not yet published as of this writing. The IRS has released this figure in October or November each of the last few years. | -- | |
So if your 2026 plan year is the one ending this December 31 and your plan allows the maximum, up to $680 of what's left can carry into 2027 and still be spent all through next year. Anything above that $680 is forfeited the same as under the default rule. An employer is also free to set its own carryover cap lower than the IRS maximum -- check your plan, don't assume it matches this table.
One or the other, never both -- and an employer can offer neither
Notice 2013-71 is explicit that "a plan adopting this carryover provision is not permitted to also provide a grace period" for the same health FSA, and the reverse holds too. An employer picks at most one of the two; adopting a carryover while a grace period is already in place requires dropping the grace period first. Notice 2020-33 also confirms a plan sponsor "has the option of not permitting any carryover at all" -- plenty of plans offer neither, meaning the plain December 31 forfeiture is the actual rule for a lot of people.
Dependent care FSAs follow a different rule
Notice 2013-71's carryover applies only to health FSAs. A dependent care FSA (DCFSA) can't carry money into the next plan year under this rule, period -- that option simply doesn't exist for it, regardless of what your employer wants. A DCFSA can still get a grace period, though: Notice 2005-42's grace period applies to cafeteria plan benefits generally, and health FSA and dependent care FSA balances are each their own bucket (money in one can't be used for the other's expenses), so a plan can grant a grace period to the dependent care side, the health side, both, or neither, independently. Don't assume "my FSA has a carryover" extends to child care costs -- check the dependent care side separately.
How to find out which option your plan has
There's no way to infer this from the plan year, the FSA limit, or anything generic -- it's whatever your specific employer's plan document says, and it can differ for the health FSA and the dependent care FSA within the same employer. Two ways to check:
- Your plan's Summary Plan Description (SPD), usually in the same benefits portal where you enrolled, should state whether it has a grace period, a carryover (and its dollar cap, which can be lower than the IRS maximum), or neither.
- Ask HR or your benefits administrator directly: "Does my FSA have a grace period or a carryover for this plan year, and if a carryover, what's the cap?"
Two worked examples
Example 1 -- carryover plan, comfortably under the cap. Your 2026 health FSA has $340 left on December 31, and your employer's plan allows the full 2026 carryover of $680. Since $340 is under the $680 cap, all of it carries into 2027 with nothing forfeited and no need to rush and spend it in December.
Example 2 -- grace period plan, balance above what you can actually spend. Your 2026 health FSA has $900 left on December 31, and your employer's plan has a grace period instead of a carryover (deadline: March 15, 2027). Between January 1 and March 15 you manage to incur $500 of new eligible expenses (an eye exam, a dental cleaning, a refill) and pay them from the leftover balance. The other $400 is forfeited on March 15 -- the grace period bought you 2.5 more months to spend, not an extra allowance, so if you can't find $900 of eligible expenses in that window, the gap is lost.
Example 3 -- dependent care FSA, no relief at all. Your dependent care FSA has $600 left on December 31, and your employer's plan has neither a grace period nor a carryover for it (and couldn't add a carryover even if it wanted to). The full $600 is forfeited at midnight on December 31 unless you incur $600 more of eligible dependent care costs before then.
Work out your own numbers
The free FSA year-end deadline calculator takes your plan year's end date, your plan's relief type, your leftover balance and the eligible expenses you could still incur, and shows the deadline that actually matters for you and how much of your balance is genuinely at risk. For the separate question of how much to put in next year's FSA in the first place, see how much to put in your FSA and the FSA calculator.