FSA Use-It-or-Lose-It: Can You Carry Over Funds in 2026?
Flexible Spending Accounts (FSAs) offer great tax savings, but they come with a notorious catch: the “Use-It-or-Lose-It” rule. Unlike Health Savings Accounts (HSAs), FSA funds generally do not roll over indefinitely. However, for the 2026 tax year, the IRS officially allows a carryover of up to $680, but only if your employer specifically opts into this rule. Here is how to check your plan and save your money before December 31st.
1. The Rule: Use It or Lose It
The IRS gives you a tax break, but demands speed in return.
FSA (Flexible Spending Account): The employer owns the account. You merely have access to it. If you don’t use the funds within the contract period, the employer keeps the change.
2. Carryover vs. Grace Period (Comparison)
Your employer may offer ONE of these options, but never both.
| Feature | Carryover Option | Grace Period Option |
|---|---|---|
| How it works | Moves a fixed amount (up to $680) to next year. | Extends the spending deadline by 2.5 months (to March 15). |
| Limit (2026) | Capped at $680. Excess is lost. | Unlimited amount, but strictly time-limited. |
| Risk Profile | Best if you have a small leftover balance. | Best if you have a large expense planned for January. |
3. Timeline: The Forfeiture Cliff
This chart shows what happens to a $1,000 balance on December 31 under different rules.
| Scenario | Jan 1st Balance | Status |
|---|---|---|
| Standard Plan (No Options) |
$0 | |
| Carryover Plan (Limit $680) |
$680 | |
| Grace Period (Until Mar 15) |
$1,000 |
4. Strategy: The “FSA Store” Hack
Don’t let the money vanish. Spend it on eligible everyday items.
- Eligible Products: You don’t need a doctor’s visit to spend FSA money. Sunscreen (SPF 15+), first aid kits, feminine hygiene products, and prescription glasses all count.
- The Receipt Rule: If you use an “FSA Card,” the purchase is usually auto-verified. If you use a personal credit card, you MUST keep the itemized receipt to upload later.
5. Warning: The “Job Change” Trap
Quitting your job triggers an immediate freeze.
⛔ Termination = Expiration
Unlike your 401(k), FSA funds do not come with you.
- The Rule: Generally, you lose access to your FSA funds on your last day of employment.
- The Exception: You can continue accessing the funds only if you elect COBRA continuation coverage.
- The Fix: If you plan to quit, spend your entire FSA balance before you give your two-week notice.