FSA Deadlines and the Use-It-or-Lose-It Rule for 2026

You put money into a health FSA at last year's open enrollment, you have spent some of it, and you have heard the rest vanishes on December 31. That may be true. It may also be that you keep $680 of it, or that you have until March 15 to spend it, or that the spending deadline has already passed but the paperwork deadline has not. All four are possible. Which one applies to you is decided by your employer's plan document, not by the IRS.

The IRS sets a ceiling and a menu of options. Your employer picks from that menu, and most employees never read the result. That is why so much FSA money is forfeited every January by people who assumed a rule that their plan does not have.

Two things make this worth checking right now. Open enrollment for the 2027 plan year is running at most employers, so the election you make in the next few weeks is locked for twelve months. And if you are in a calendar-year 2026 plan, your spending deadline is roughly three months away.

What happens to money you leave in the account?

It goes back to your employer. A health FSA runs on a use-or-lose rule. IRS Publication 969 states it directly: FSAs are generally "use-it-or-lose-it" plans, and amounts in the account at the end of the plan year generally cannot be carried over to the next year. Your employer is not permitted to refund any part of the balance to you in cash.

That cash prohibition is not an oversight. If unused salary reductions could come back as money, the account would be deferring compensation rather than paying for health coverage, and it would lose the tax treatment that makes it worth having.

Two exceptions soften the rule. Both are optional for the employer, and a plan can adopt one or the other, not both. Plenty of plans adopt neither and are entirely compliant.

The 2026 contribution limit, and what is known about 2027

For plan years beginning in 2026, the limit on voluntary employee salary reductions into a health FSA is $3,400, set in Revenue Procedure 2025-32, section 4.15. The maximum carryover, for plans that permit one, is $680.

The limit is per employee, not per household. Two spouses who each have a health FSA at their own jobs can each elect up to the limit.

The 2027 figures are FIGURE NEEDED. The IRS publishes them in a revenue procedure that typically lands in October or November of the prior year, so the 2027 numbers are not yet official as of September 2026. If your employer's enrollment portal is already showing a 2027 maximum, it is working from a projection. Anything you see quoted for 2027 before the revenue procedure appears is an estimate, not a rule.

Carryover or grace period: which one does your plan have?

These two options sound similar and behave very differently.

A carryover lets a set dollar amount survive into the next plan year and be spent on expenses incurred in that next year. For 2026 balances, the ceiling is $680, and a plan is allowed to set a lower amount. Anything above the carryover amount is forfeited.

A grace period gives you up to two months and 15 days after the plan year ends to incur new expenses and pay for them with last year's money. For a calendar-year plan, that runs to March 15. There is no dollar cap: the whole leftover balance stays available during the grace period.

Notice 2013-71, which created the carryover, is explicit that a plan adopting a carryover is not permitted to also provide a grace period for its health FSA.

Why the run-out deadline trips people up

The run-out period is the deadline that quietly costs people money. It is not extra spending time. It is extra filing time.

Notice 2013-71 defines it cleanly: a run-out period is the window immediately after the plan year during which a participant can submit a claim for reimbursement of expenses already incurred during the plan year. A grace period, by contrast, lets you incur brand new expenses using last year's money.

A common calendar-year setup has a March 31 run-out deadline and no grace period. Read quickly, "March 31" looks like three extra months of shopping. It is not. A December 20 physical therapy bill can be submitted through March 31. A February 10 pair of glasses cannot be reimbursed at all, because the plan year ended and no grace period exists.

Plans can have both a run-out period and a grace period, in which case the run-out window sits after the grace period and covers claims from both. The two dates are set independently by your plan, and neither is set by the IRS.

Your full election is available on day one

This is the FSA feature that gets the least attention and is worth the most. Under the uniform coverage rule in the proposed cafeteria plan regulations, the maximum amount of reimbursement from a health FSA must be available at all times during the period of coverage, reduced only by reimbursements already taken. The regulations add that the available amount cannot relate to how much has actually been contributed at any point before the end of the plan year.

In plain terms: your whole annual election is spendable in January, even though payroll deductions run all year.

Here is a hypothetical. You elect $2,400 for 2026, deducted at $200 a month. In February you have a $2,400 dental procedure. You can be reimbursed for the full $2,400 in February, having contributed $400 so far. That makes an FSA genuinely useful for a known expense early in the year: braces scheduled for spring, a planned procedure, a new prescription starting in January.

It also cuts the other way, and in your favor. If you leave that job in March with the $2,400 already reimbursed, you generally keep the difference. The employer absorbs it. Health FSA coverage ends when employment ends unless you elect COBRA continuation for the account, so the risk runs the opposite direction if your balance is unspent when you go.

Note the limit: uniform coverage applies to health FSAs only. It does not apply to dependent care FSAs.

What counts as an eligible expense?

Broader than most people think. The standard is medical care under section 213(d), which reaches well past copays and prescriptions.

Publication 969 confirms that over-the-counter medicine, whether or not prescribed, and menstrual care products are covered expenses. IRS Notice 2024-71 added condoms. Beyond that, the eligible list routinely includes:

• Dental work, including crowns and orthodontia
• Glasses, contacts, contact solution and eye exams
• Chiropractic care, physical therapy and acupuncture
• Bandages, thermometers, blood pressure monitors, sunscreen with SPF 15 or higher
• Breast pumps, pregnancy tests and fertility treatment
• Mileage driven to and from medical appointments

Every reimbursement has to be substantiated. The regulations require that expenses be substantiated by an independent third party before payment, which is why an FSA debit card swipe can generate a request for a receipt weeks later. If you ignore that request, the plan is required to treat the amount as improperly paid and will recoup it, usually from payroll or by suspending the card.

Dependent care FSAs run on separate rules

A dependent care FSA is a different account with a different limit and different mechanics, even though it sits inside the same cafeteria plan.

For 2026, Publication 15-B sets the exclusion at $7,500, or $3,750 if married filing separately, up from $5,000. That limit is per household, not per child and not per spouse. It also does not adjust for inflation the way the health FSA limit does.

Three differences matter in practice. There is no carryover for a dependent care FSA; the carryover option applies to health FSAs only. A grace period is permitted, so many plans use one. And because uniform coverage does not apply, you can only be reimbursed up to what payroll has actually taken out so far, which surprises parents who front-load a January daycare payment.

The account also interacts with the child and dependent care credit. Topic 602 caps creditable expenses at $3,000 for one qualifying individual and $6,000 for two or more, and requires you to subtract dependent care benefits you excluded from income from that dollar limit. Run both paths on the same numbers before you elect, using the childcare cost calculator for your actual annual spend.

How an FSA differs from an HSA

The confusion between these two accounts is constant, and the differences are structural rather than cosmetic.

An FSA belongs to the employer's plan. It does not travel with you when you change jobs. It generally cannot be invested, so the balance does not grow. It has an annual forfeiture date. And it does not require any particular kind of health coverage, which is the reason it is available to people on a standard PPO.

An HSA is yours, moves with you, has no annual deadline, and can be invested, but requires a qualifying high-deductible plan. Our guides on HSA contribution limits and the HSA versus PPO comparison cover that side in detail, and HSA account providers covers the investing question.

What people get wrong at open enrollment

• Electing for a good year instead of a normal one. The election is fixed for twelve months absent a qualifying life event. Most people should look at what they actually spent last year, not what they might spend.
• Assuming a carryover exists. It is optional. Check the summary plan description rather than assuming the $680 applies to you.
• Treating the run-out date as a spending date. Covered above, and it is the single most expensive misreading on this page.
• Ignoring a substantiation request. An unsubstantiated debit card charge gets clawed back, and the card usually gets frozen until it is resolved.
• Leaving a job with a balance. Coverage generally ends with employment unless COBRA is elected for the FSA. Expenses incurred after your last day of coverage are not reimbursable.
• Double counting with a spouse's plan. Two health FSAs in one household can each hit the limit, but they cannot both reimburse the same expense.

Where an FSA is not the right account

If you are eligible for an HSA and would rather build a balance than spend one, a general purpose health FSA is a poor fit, and enrolling in one can disqualify you from HSA contributions entirely. That includes a spouse's general purpose health FSA in many cases.

An FSA also does little for someone with genuinely unpredictable medical spending near zero. The tax saving equals your marginal rate on the amount you actually spend, so a small election that goes partly unused can net out negative. You can estimate the size of the benefit against your marginal rate with the income tax calculator.

Self-employed people are not eligible for an FSA at all, per Publication 969. There is no individual version of this account.

What to do before December 31

• Find your plan's actual deadlines in the summary plan description: the last day to incur expenses, and the separate run-out date for filing claims.
• Confirm in writing whether your plan has a carryover, a grace period, or neither.
• Check your current balance and subtract claims already filed but not yet paid.
• Clear any outstanding substantiation requests before the card is suspended.
• If you are leaving a job, incur eligible expenses before your last day of coverage.
• For 2027 open enrollment, base the election on last year's real spending and wait for the official IRS limit before assuming a number.
• If you are weighing an FSA against an HSA-eligible plan, compare total cost including premiums rather than the tax break alone.

Broader 2026 rule changes that touch payroll deductions are covered in the 2026 tax changes summary.