Use It or Lose It: Save Your FSA Balance Before 2026 Ends

Dana pulled up her benefits portal on December 18, 2025, mostly out of habit, and found $612 still sitting in her health FSA. She had until December 31 to spend it or hand it back to her employer. That's how she ended up buying two years of contact lenses, a blood pressure cuff, and an almost embarrassing amount of sunscreen in the last two weeks of the year.

Dana got lucky. She caught it in time.

Plenty of people don't. A flexible spending account is one of the only benefits that can punish you for looking away. According to the Employee Benefit Research Institute's 2024 analysis of more than 3.2 million accounts, about half of FSA holders forfeited money back to their employer in a single year, and the average amount left behind was $441. That is money people already earned, already set aside for their own health care, and then simply lost. Younger workers were the most likely to lose it.

Right now, in the fall of 2026, you probably have two FSA jobs in front of you at once. One is making sure you don't forfeit whatever is left in this year's account. The other is picking your 2027 number during open enrollment so you don't repeat the scramble next December. Both are easier than they sound once you know how the rules work.

What "use it or lose it" really means

An FSA lets you set aside pretax money from your paycheck to spend on health costs. For 2026 you can put in up to $3,400, an amount the IRS raised from $3,300 the year before. The catch that trips everyone up is the deadline: by default, whatever you haven't spent by the end of your plan year goes back to your employer. Not to you, not to next year, back to the company.

That sounds harsh, and there's a reason for it. Your employer has to make your full annual election available on day one, even though the money comes out of your checks a little at a time. If you spent $2,000 in January and quit in February having only contributed $300, your employer eats the difference. The forfeiture rule is the other side of that deal.

The IRS lets employers soften the deadline in two ways, and this is where it pays to know your own plan. The first is a carryover: your plan can let you roll unused money into the next year, up to a cap the IRS sets at 20 percent of the annual limit. For 2026 that works out to $680 you could carry into 2027. The second is a grace period: an extra two months and fifteen days after the plan year ends, so through about March 15, to spend last year's balance.

A plan can offer one of those options or the other, but never both, and it's allowed to offer neither. Plenty of plans offer neither. If your plan is a straight use-it-or-lose-it with no carryover and no grace period, December 31 is a hard wall. (One more wrinkle worth knowing: the dependent care FSA people use for daycare never gets a carryover, only a possible grace period, so those rules are stricter still.)

The boring first step is the whole game

Before you buy a single thing or elect a single dollar, find out which kind of plan you have. Most people couldn't tell you offhand, and it changes everything about what you should do next.

Log into your benefits portal or call HR and get answers to three questions. What is my current balance? What is my deadline to spend it? And does my plan have a carryover, a grace period, or neither? Five minutes on the phone in October beats a frantic search in the last week of December.

Your deadline falls into one of three buckets. If your plan has neither feature, you spend it by December 31 or you lose it. If it has a grace period, you have until roughly the middle of March to use this year's money. If it has a carryover, up to $680 rolls forward on its own, and anything above that carryover cap still faces the year-end deadline. Write your number and your date somewhere you'll see them.

The tax break only works on money you spend

FSAs get a bad reputation because of the forfeiture rule, but the tool itself is a good one when you use it right. The money goes in before income tax and before the 7.65 percent payroll tax comes out. For someone in the 22 percent federal bracket, running the full $3,400 through an FSA saves roughly $1,000 in taxes, and more once you count state tax. You're getting a real discount on spending you'd have done anyway.

The trouble is that the discount only applies to the dollars you spend. Forfeit them and the math flips hard against you. Say you leave $441 on the table, the average from that EBRI study. You diverted that $441 pretax, so you saved maybe $130 in tax on it, but you lost the entire $441. Had you just taken the money as ordinary pay, you'd have kept around $310 after taxes. Funding an account and then forfeiting the balance leaves you worse off than if you'd never funded it at all. The account rewards you for spending and quietly penalizes you for overshooting.

How to spend a balance down without wasting it

There is a wrong way to do this, and it's the way most people panic into: grabbing random stuff at the drugstore on December 30 just to zero out the account. Spending money to avoid losing money is still spending money. The goal is to put the balance toward things you truly need. Panic-buying clutter is just a slower way to waste it.

Start with the care you've been putting off. That dental cleaning, the eye exam, the dermatology appointment, the physical therapy you keep rescheduling. Copays and out-of-pocket costs for real appointments are exactly what an FSA is for, and booking them before your deadline is the highest-value way to use the money.

Then look at the everyday stuff that qualifies, because the list is broader than most people realize. The CARES Act of 2020 made over-the-counter medicines FSA-eligible without a prescription, so pain relievers, allergy pills, cold and flu remedies, and antacids all count. So do sunscreen rated SPF 15 and up, menstrual products, first-aid supplies, contact lenses and solution, reading glasses, and a new pair of prescription glasses. If you wear contacts, buying a year's supply before the deadline is close to a perfect spend-down: you needed them anyway, and now you're buying them with pretax dollars.

Now set your 2027 number

This is what open enrollment is for, and it's happening at most workplaces right now. Your 2027 election is your chance to make sure next December looks nothing like Dana's.

The way to pick a number is to add up the spending you can predict. Your regular prescriptions across the year. The copays for visits you know are coming. The dental work already on the calendar, the contacts you'll reorder, the glasses you replace like clockwork. That predictable total is your floor, and for most people the smart election sits close to it rather than up near the ceiling.

The reason to aim low comes down to a lopsided bet. If you under-elect, the cost is small: you miss out on a bit of tax savings on spending you could have run through the account. If you over-elect, you risk forfeiting real dollars you already earned. When the downside on one side is "slightly less tax savings" and the downside on the other is "lost money," you lean toward the smaller mistake.

The one time you can be a little more generous is when your plan offers that $680 carryover. It gives you a built-in cushion, because any overshoot up to $680 rolls forward instead of vanishing. If you've confirmed your plan has it, you can size your election with more comfort. If your plan is use-it-or-lose-it with no safety net, estimate conservatively and thank yourself next winter.

The Bottom Line

An FSA is a good deal that turns into a bad one the moment you forfeit a balance, and about half of the people who use one forfeit something every year. Keeping your money is mostly a matter of paying attention on a schedule. Three moves are worth making this week:

1. Find your balance and your deadline. Log into your benefits portal or call HR and ask three things: how much is left, what date it's due by, and whether you have a carryover, a grace period, or neither. You can't plan around a deadline you don't know.

2. If there's a balance, spend it on care you need. Book the dental, vision, or doctor visits you've been postponing, then restock on qualifying items like OTC medicine, sunscreen, and a year of contacts. Use it on real needs rather than December filler.

3. Set your 2027 election to your predictable floor. During open enrollment, total up the health spending you can count on and elect close to that number. Aim low unless your plan has the $680 carryover to cushion an overshoot.