Health flexible spending accounts let workers set aside pretax money to cover eligible health expenses, but unused balances are often forfeited at the end of the plan year. Despite this risk, employees who lose some of their funds can still come out ahead financially compared to not participating at all.
Forfeitures and Plan Rules
According to an October report from the Employee Benefit Research Institute, about 4 in 10 workers with health FSAs forfeited unused money in 2024. The study analyzed over 3.3 million accounts representing $3.9 billion in contributions, finding an average forfeiture of $404 among those account holders, down from $436 in 2023. Data from the Bureau of Labor Statistics shows that health FSAs are accessible to 72% of state and local government workers and 47% of private-sector workers in 2026.
Health FSAs differ from health savings accounts, which allow balances to roll over annually and be invested. Roughly a third of FSA users face strict use-it-or-lose-it rules, as reported by US Top News and Analysis. The remaining users are either allowed by employers to carry over up to $680 into 2026 or given a grace period of up to 2.5 months, though employers cannot provide both options. While many plans end on Dec. 31, deadlines vary, and employees typically have an extra three months to submit receipts for qualifying past expenses.
Calculating Financial Benefits
The maximum contribution limit for health FSAs is $3,400 for 2026, rising to $3,500 in 2027, according to the IRS. Because contributions must be chosen before the plan year starts, predicting exact health costs can be challenging, particularly for healthy individuals. FSA deductions avoid federal and FICA taxes, alongside potential state and local taxes.
Sean Lovison, a certified financial planner and founder of Purpose Built Financial Services in Moorestown, New Jersey, explained that workers can calculate their tax savings by combining applicable tax rates and applying the total to their contribution. For example, a 35% total tax rate on a maximum contribution of $3,400 results in $1,190 of estimated tax savings. As long as any forfeited amount stays below that tax savings figure, the participant comes out ahead.
Spending Remaining Funds
Before facing a forfeiture, participants can utilize various eligible expenses to spend down their balances. Rachel Rouleau, chief compliance officer for Health-E Commerce, noted that thousands of eligible options exist, ranging from everyday healthcare essentials to telehealth services. Over-the-counter medications, menstrual care products, sunscreen, first-aid supplies, and health-monitoring devices are frequently eligible alongside standard medical and dental care.
Participants uncertain about their remaining balance or deadlines can check online portals provided by most plans or look at the FSA administrator contact details listed on the back of their FSA card, as reported by US Top News and Analysis.
