Your FSA Money Expires December 31 — the $680 Rule That Decides What You Keep
By Daniel Kim
If you put money into a health flexible spending account this year, part of it may already be scheduled to disappear. A health FSA is use-it-or-lose-it by design: money you do not spend on eligible medical expenses by the end of your plan year generally goes back to your employer. For most people on a calendar-year plan, that date is December 31, 2026. Two IRS rules soften the blow — a carryover of up to $680, or a grace period of up to two and a half months — but your plan offers at most one of them, and neither is automatic. December is crowded with benefit deadlines: Medicare Open Enrollment ends December 7, and if you have not checked your 2027 drug coverage, that deadline matters more than this one. This post works through the 2026 numbers, three worked examples, and the checklist to run before December 31.
For calendar-year plans, unspent 2026 health FSA money is forfeited after December 31, 2026, unless your plan offers a carryover (up to $680 rolls into 2027) or a grace period (up to 2½ months, through March 15, 2027, to incur new expenses). A plan cannot offer both, and neither is required. The 2026 employee contribution limit is $3,400. Check your plan documents today for which rule, if any, your plan uses — that one fact decides what survives.
Contents
- The rule in one paragraph
- The 2026 numbers, side by side
- Carryover or grace period — your plan picks one
- Three worked examples: what you keep, what you lose
- The impact chain: how an unspent balance reaches your wallet
- What you can spend it on before December 31
- Dependent care FSAs follow different rules
- Your December checklist
- Frequently asked questions
- Sources
The rule in one paragraph
A health FSA lets you set aside pre-tax dollars from your paycheck to pay for qualified medical expenses. The IRS treats it as a use-it-or-lose-it account: money left over when the plan year ends is generally forfeited to your employer (IRS Publication 969). That is the whole rule. Everything else in this post is about the two exceptions your employer may — but is not required to — offer, and the deadline for finding out which one, if either, applies to you. The exceptions are written into your plan documents, not into the tax code as a right: if your employer never adopted either one, the strict deadline stands. The same rule is why an FSA is not a savings account. Money in a health savings account (HSA) rolls over in full every year; money in an FSA does not, unless one of the two exceptions below saves it.
The 2026 numbers, side by side
The IRS announced the 2026 figures on October 9, 2025, in news release IR-2025-103. The contribution limit rose $100, from $3,300 to $3,400, and the maximum carryover rose $20, from $660 to $680. The carryover is set at 20% of the contribution limit — $680 is 20% of $3,400 — so the two numbers move together. Your employer can set a lower contribution limit than the IRS maximum, and a lower carryover cap; it cannot set a higher one. The $3,400 limit applies to your salary reductions. Employer contributions, if your plan offers them, sit outside that cap.
| Figure | 2025 | 2026 | Source |
|---|---|---|---|
| Employee contribution limit | $3,300 | $3,400 | IRS, IR-2025-103 |
| Maximum carryover | $660 | $680 | IRS, IR-2025-103 |
| Grace period | Up to 2½ months | Up to 2½ months | IRS Publication 969 |
Carryover or grace period — your plan picks one
A plan cannot offer both for the same health FSA in the same plan year (IRS Publication 969; IRS Notice 2013-71). The difference that matters: a carryover saves a fixed slice of the balance permanently — money that rolls over can pay for expenses any time next year. A grace period saves nothing permanently; it only moves the spending deadline. Anything still unspent when the grace period closes is forfeited entirely. And carried-over dollars do not count against your contribution limit for the new plan year, so a $680 carryover does not reduce the amount you may elect next year. Before you plan around either one, confirm which your plan actually offers. The answer is in your summary plan description or benefits portal — not in a guess, and not in what a coworker’s plan does.
| Carryover | Grace period | Neither | |
|---|---|---|---|
| What it does | Up to $680 of unused funds moves into the next plan year | Up to 2½ extra months to incur new expenses with last year’s balance | Nothing — the balance is forfeited at year end |
| Calendar-year deadline | Spend the rest by Dec 31, 2026 | Spend by March 15, 2027 | Dec 31, 2026 |
| What happens to the rest | Amounts above $680 are forfeited | Anything left after the grace period is forfeited in full | All of it is forfeited |
| Your plan | Must be written into the plan | Must be written into the plan | The default rule |
Three worked examples: what you keep, what you lose
The rule is abstract until you run your own balance through it. These three examples use the 2026 numbers above; substitute your balance and your plan’s rule.
Example 1 — carryover plan, $900 left. You elected the full $3,400 and spent $2,500 by December 31. That leaves $900. Under a carryover plan, $680 rolls into 2027 and $220 is forfeited. The math: $3,400 − $2,500 = $900; $900 − $680 = $220.
Example 2 — carryover plan, $400 left. You elected $3,400 and spent $3,000. That leaves $400 — below the $680 cap — so the entire $400 rolls over and nothing is forfeited. A small leftover is fully protected; the carryover only bites when the leftover tops $680.
Example 3 — grace period plan, $1,500 left. Your plan offers a grace period instead. You have $1,500 left on December 31. You have until March 15, 2027 to incur new eligible expenses against that balance. Spend $1,500 on eligible care by then and nothing is lost; spend $1,000 and the remaining $500 is forfeited when the grace period closes.
If your plan offers neither, the full leftover balance is forfeited on December 31 — there is no partial save.
The impact chain: how an unspent balance reaches your wallet
The phenomenon. The balance sits in an account you funded from your own paychecks, and the forfeiture rule treats unspent money as the employer’s, not yours.
The chain. You elected $3,400 early in the year, when your medical spending was a guess. By December you have $900 left. If your plan has a carryover, $680 survives and $220 disappears. If it has a grace period, the whole $900 survives only if you incur $900 of eligible expenses by March 15. If it has neither, the whole $900 disappears on December 31 — money that skipped income tax on the way in, but never bought anything.
The wallet impact. The loss is the leftover itself, dollar for dollar: $220 in the first example, $900 in the no-exception case. The fix costs nothing — it is a calendar check and a spending decision before December 31, not a new product.
What you can spend it on before December 31
Eligible expenses are defined by the IRS in Publication 502: medical, dental, and vision care — copays, prescriptions, dental work, glasses and contacts, and over-the-counter medicines, among others. The practical test is whether the expense is medical care for you, your spouse, or your dependents. A few boundaries: the money pays for care, not for general health products without a medical purpose, and your plan’s own list of eligible expenses is the one that controls — if an item is not on it, the claim will not be paid. Check the list before you buy, not after: a purchase made to “use up” the balance only helps if the plan reimburses it. And the full annual election is available from the first day of the plan year — you do not have to wait until you have contributed the money to spend it (IRS Publication 969).
Dependent care FSAs follow different rules
Dependent care FSAs are a separate account with separate rules, and the health FSA carryover does not apply to them. For 2026, the dependent care exclusion rose to $7,500 a year — $3,750 if you are married filing separately — under the One, Big, Beautiful Bill (P.L. 119-21). A dependent care FSA may offer a grace period of up to 2½ months, the same shape as the health FSA’s, but it has no carryover option. If you hold both accounts, check each one separately: the health FSA’s December 31 answer tells you nothing about the dependent care account.
Your December checklist
- Open your benefits portal and read which year-end rule your health FSA uses: carryover, grace period, or neither. This is the one fact the rest of this post depends on.
- Check your balance today, not on December 30.
- If you have a carryover, compute the amount above $680 — that is the part you must spend by December 31.
- If you have a grace period, list the eligible expenses you can incur by March 15, 2027 — appointments, prescriptions, dental work — and book them now.
- If you have neither, spend the balance on eligible care before December 31, or accept the forfeiture with your eyes open.
- Keep receipts and submit claims before your plan’s claim-submission deadline — the spending deadline and the paperwork deadline are not the same date.
- If you also hold a dependent care FSA, run the same check on it separately: its 2026 limit is $7,500, and it has no carryover. Money you free up still needs a home — the order for a lump sum is bills, debt, buffer, then yield.
The FSA does not remind you. December 31 does — by taking the money.
- 2026 health FSA limit: $3,400
- Maximum carryover: $680
- Grace period: up to 2½ months (through March 15, 2027 for calendar-year plans)
- Dependent care FSA 2026: $7,500 ($3,750 married filing separately)
- Deadline for calendar-year plans: December 31, 2026
Frequently asked questions
What if my plan offers neither a carryover nor a grace period?
Then the strictest rule applies: any balance left on December 31 is forfeited. There is no partial save and no extra time. Spend it on eligible care or lose it.
Does the $680 carryover reduce what I can contribute next year?
No. Carried-over dollars do not count against the next year’s $3,400 limit. If you carry over the full $680 and elect $3,400 for 2027, you have $4,080 available.
What happens to the money I forfeit?
It goes back to your employer. IRS Publication 969 explains that your employer may use forfeited amounts to pay administrative costs or to reduce future salary-reduction contributions.
Can I use a 2027 health FSA to reimburse a 2026 expense?
No. A 2027 health FSA may only reimburse expenses incurred in 2027. A 2026 expense may only be reimbursed from your 2026 account, so it must be paid before the year ends.
Which rule does your plan use, carryover or grace period? Check your plan documents today. If your plan offers a grace period, March 15, 2027 is the last day to spend 2026 money.
This post explains general tax rules in plain language. It is not tax, legal, or financial advice. Your plan documents decide how your FSA works.
About the author: Daniel Kim
Daniel Kim writes about practical knowledge for everyday life and your wallet, from household money decisions to understanding the economy around you.
Sources
- IRS, News Release IR-2025-103, October 9, 2025 — 2026 health FSA limit $3,400, maximum carryover $680. https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
- IRS, Revenue Procedure 2025-32, §4.15 (Cafeteria Plans) — “the dollar limitation under § 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $3,400. If the cafeteria plan permits the carryover of unused amounts, the maximum carryover amount is $680.” https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
- IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans — use-it-or-lose-it rule, grace period up to 2½ months, carryover and grace period not both permitted, eligible expenses (summarized with citations here): https://legalclarity.org/irs-publication-969-rules-for-tax-favored-health-plans/
- IRS Notice 2013-71 — carryover introduced; a plan that adopts a carryover may not also provide a grace period for health FSAs (cited here): https://legalclarity.org/how-does-a-flex-spending-account-rollover-work/
- Dependent care FSA $7,500 for 2026 ($3,750 married filing separately) under P.L. 119-21: https://www.nfp.com/insights/irs-announces-2026-benefit-limits/
- Worked example ($900 left: $680 carries, $220 forfeited) and carried-over dollars not counting against the next year’s limit: https://legalclarity.org/how-does-fsa-carryover-work-irs-rules-and-limits/
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