Large Share of Workers Forfeit Balances Under Use It or Lose It Rules
As the year comes to a close, many employees with health flexible spending accounts face the possibility of unintentionally surrendering money back to their employers. Research from the Employee Benefit Research Institute shows that between 40 percent and 50 percent of account holders fail to spend their balances by the usual December 31 deadline. Because most employers follow a strict use it or lose it policy, any unspent money is forfeited once the deadline passes unless the company offers special extensions.
“Many people do not realize they have a deadline or do not know the amount left in their account,” said Rachel Rouleau, chief compliance officer for Health E Commerce, the parent company of FSA Store. Confusion about plan rules remains one of the biggest reasons workers leave money unclaimed each year.
FSAs have grown more common as health costs continue to climb. In 2024, 72 percent of state and local employees and 47 percent of private sector workers had access to an FSA, according to the Bureau of Labor Statistics. The accounts allow workers to set aside pretax dollars for medical expenses, and the contribution limit increased to 3,300 dollars this year. That limit will rise to 3,400 dollars in 2026.
Yet unlike health savings accounts, which allow funds to roll over indefinitely, FSAs operate under stricter rules. Workers with high deductible health plans often pair them with HSAs, but Rouleau and financial advisors caution that FSAs and HSAs should not be confused. HSAs do not require funds to be spent within a specific year, while FSAs usually do.
Deadlines, Grace Periods and Carryovers Create Complex Rules
For employees with FSAs, the first step is determining whether their company follows a calendar year or an alternative plan schedule. Most plans end on December 31, but some employers use different timelines. It is also important to check whether the plan offers a grace period of up to two and a half months to incur new eligible expenses or a carryover option that allows up to 660 dollars to move into the next plan year. Employers may offer only one of these choices, not both.
In addition, many companies give workers extra time, usually up to three months after the deadline, to submit receipts for expenses incurred during the previous plan period. This extended filing window allows employees to document purchases they made before the deadline but had not yet submitted for reimbursement.
Still, for those who have neither a grace period nor a carryover provision, unused balances must be spent quickly. “Use eligible expenses to your advantage,” said certified financial planner Bill Shafransky of Moneco Advisors. He noted that many households already spend substantial amounts on items that qualify for FSA reimbursement.
According to estimates provided by FSA Store, the average household spends about 1,600 dollars per year on products that can be covered by FSAs. The list of approved items is wide ranging and includes cold and allergy medications, menstrual care products, acne treatments, pain relief medicines and a variety of over the counter supplies. Health related technology products, such as light therapy devices and migraine relief masks, also qualify.
Beyond retail items, FSA funds can be used to cover medical appointments, dental visits, prescription drugs, vision care and specialized treatments including acupuncture and substance use services. These categories offer multiple ways for employees to use remaining balances before the deadline.
How Workers Can Check Balances and Avoid Forfeiting Funds
Employees who are unsure about their remaining FSA funds, plan deadlines or eligible expenses have several ways to obtain information. Most companies provide an online portal through their FSA administrator where workers can review balances, submit claims and confirm cut off dates. The administrator’s contact information is usually printed on the back of the FSA debit card.
If the account provider is unclear, employees can ask their human resources department for assistance. Rouleau said this is the fastest way to confirm who manages the plan and what rules apply.
In 2023, the average forfeited balance for workers who missed the deadline was 436 dollars, according to the Employee Benefit Research Institute. With rising medical costs and increased reliance on pretax accounts, financial advisors say it is more important than ever for employees to track their spending and avoid turning unused funds into a year end gift to their employers.
With deadlines approaching quickly and use it or lose it rules firmly in place for most plans, taking early action can help workers maximize their benefits and prevent avoidable losses. A quick balance check, a review of eligible categories and a few strategic purchases can ensure the remaining funds are put to good use.
