Do FSA Funds Expire if Unused? Key Rules and Options Explained
Learn about FSA fund expiration, key rules, and options to maximize your benefits and avoid forfeiture.
Flexible Spending Accounts (FSAs) offer employees a tax-advantaged way to pay for eligible healthcare expenses. However, the “use-it-or-lose-it” rule can result in forfeited funds if not spent by specific deadlines. Understanding these rules is key to maximizing benefits without losing money.
Annual Cutoff Dates
Managing annual cutoff dates is critical for effective FSA use. The IRS generally requires funds to be used by the end of the plan year, often December 31. Employers may extend this deadline with either a grace period or a carryover option. A grace period gives employees an additional two and a half months—until March 15—to incur eligible expenses, which can help with unexpected year-end medical costs.
Alternatively, some employers provide a carryover option, allowing up to $610 of unused funds to roll into the next plan year. This ensures that a portion of unspent funds is preserved, offering employees added flexibility. Employers can only offer one of these options, not both.
Grace Period Option
The grace period extension allows employees additional time to use their FSA funds, reducing the stress of year-end spending. It can also help employees plan for early-year medical expenses. Employers offering this option acknowledge the unpredictability of healthcare costs, which can enhance employee satisfaction. Knowing there’s extra time to incur eligible expenses promotes smarter financial decisions.
Carryover Option
The carryover option lets employees roll over a set amount of unused funds into the next plan year, easing the pressure to spend immediately. This option is especially useful for employees with ongoing medical expenses. Employers must choose between offering a carryover or a grace period, based on workforce needs.
For employees, the carryover option offers financial security, ensuring some funds are preserved for future healthcare needs. This feature encourages proactive healthcare planning and aligns with long-term financial goals.
Forfeiture if Unused
The “use-it-or-lose-it” rule requires careful planning to avoid forfeiting FSA contributions. Unused funds are forfeited at the end of the plan year or after any applicable extensions. Employees must estimate their healthcare expenses accurately during enrollment. Scheduling routine medical appointments or purchasing eligible items before deadlines can help avoid forfeiture, though this approach may lead to rushed spending.
Reimbursement Submission
Submitting claims for reimbursement is an essential part of FSA management. Employees must provide documentation, such as receipts or Explanation of Benefits (EOB) statements, when filing claims. Many employers allow a 90-day run-out period after the plan year ends for submitting claims, but deadlines vary by employer.
Understanding the submission process, whether through online portals or paper forms, is key. Employees should ensure expenses meet IRS eligibility guidelines to avoid denied claims. Keeping organized records simplifies the process and minimizes errors.
Employers can improve the reimbursement experience by offering clear guidance and user-friendly tools. Many FSA administrators provide mobile apps or debit cards linked to accounts, streamlining payments and documentation. However, some claims may require additional documentation, so employees should remain diligent.
Plan Variations
FSA plans differ widely, and understanding these variations helps employees make informed decisions. Employers determine specific plan features, such as contribution limits, eligible expenses, and deadline extensions. While the IRS sets a $3,050 annual contribution limit for 2024, employers may impose lower caps.
Some plans offer specialized FSAs, like dependent care FSAs for childcare or eldercare expenses, or limited-purpose FSAs for dental and vision costs, which pair with Health Savings Accounts (HSAs). Employees should evaluate these options in the context of their broader financial goals.
Administrative differences also affect the participant experience. Some employers work with third-party administrators that provide advanced support or digital tools, while others use more basic systems. These variations influence claim processing times and resource availability. Employees should assess these differences to optimize their FSA benefits.