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FSA Use-It-or-Lose-It: Carryover vs Grace Period
Educational information only. Not tax, legal or financial advice. Check IRS.gov and your plan documents. Last checked against official sources: October 17, 2026. Examples use made-up numbers.
Short answer: Per IRS Pub. 969, health FSAs are generally "use-it-or-lose-it": unused amounts at the end of the plan year can't generally be carried over. However, a plan may offer either a grace period (up to 2½ months) or a carryover (a limited dollar amount), but a plan that adopts a carryover is not permitted to also provide a grace period. Your employer decides which, if any.
The two options
| Grace period | Carryover | |
|---|---|---|
| What it allows | Qualified expenses incurred up to 2½ months after plan year end can be paid from leftover money | Up to a set dollar amount of unused money can be used in the next plan year |
| Limit | Up to 2½ months | Up to $680 for amounts carried from 2026 plan years into 2027 (Rev. Proc. 2025-32); the plan may set a lower amount |
| Both together? | Not allowed with carryover | Not allowed with a grace period |
| Refund of leftover? | The employer can't refund any part of the balance to you | Amounts above the carryover amount are forfeited |
The carryover doesn't affect the maximum salary-reduction amount you may elect for the next year (Pub. 969).
Dates
A calendar-year plan typically ends December 31, but plan years vary; check your plan documents. A grace period of up to 2½ months after December 31 would run to about mid-March; your plan sets its own.
FSA numbers
2027 health FSA limit: not announced. As of October 17, 2026 we found no IRS announcement of the 2027 health FSA salary-reduction or carryover limit (we are not repeating unofficial projections). The official figures we found are for 2026: $3,400 salary reduction and, if your plan allows carryover, up to $680 (Rev. Proc. 2025-32). Check your plan documents and IRS.gov.
Three questions to ask your employer or administrator
- Does our plan offer a carryover, a grace period, or neither? What is the exact amount or end date?
- What is the claims run-out deadline to submit receipts for expenses incurred during the plan year? (Not set in the IRS sources we read.)
- If I'm switching to an HSA-eligible plan, how does a grace period or leftover balance affect HSA eligibility? (see FSA and HSA together)
What qualifies
Pub. 969 says qualified medical expenses are those specified in the plan that would generally qualify for the medical and dental deduction, including over-the-counter medicine and menstrual care products. Whether a specific item is covered depends on your plan.
Checklist before plan year end
- Check your balance and plan deadlines.
- List expected eligible expenses.
- Keep receipts and the third-party documentation the plan requires.
FAQ
Can I get unused money back? The IRS says the employer isn't permitted to refund the balance during a grace period; forfeiture rules apply otherwise.
Is the 2027 FSA election limit known? No; see the note above.
What we could not verify
- Your plan's specific rules and run-out dates.
- The 2027 FSA limit (not announced as of October 17, 2026).
Sources (official)
- IRS, Publication 969 (2025), Health Savings Accounts and Other Tax-Favored Health Plans (Feb 11, 2026 print; for 2025 returns) — https://www.irs.gov/publications/p969 (read October 17, 2026)
- IRS, Rev. Proc. 2025-32 (2026 inflation adjustments, incl. health FSA $3,400 / carryover $680) — https://www.irs.gov/pub/irs-drop/rp-25-32.pdf (read October 17, 2026)
Not tax/financial advice. Examples use made-up figures and have not been reviewed by a tax professional. See the disclosure.