Many workers lose unused FSA money — but could still come out ahead. Here’s how

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Health versatile costs accounts, or FSAs, are tax-advantaged accounts that let employees reserved pretax cash to cover qualified health costs. They’re typically utilize it or lose it, with unspent balances surrendered at the end of the strategy year.

About 4 in 10 employees with health FSAs surrendered unused cash in 2024, according to an October report from the Employee Benefit Research Institute, a not-for-profit research study company. Amongst those FSA account holders, the typical forfeit was $404, below $436 in 2023. The research study analyzed more than 3.3 million accounts representing $3.9 billion in contributions.

Even employees who do not zero out their balance might still benefit from utilizing an FSA, compared with what they would have invested utilizing after-tax dollars to cover the exact same expenditures.

“Even if someone forfeits FSA funds back to their employer, they can still come out ahead — relative to not participating in an FSA — if the amount they forfeited is less than the tax savings they realized,” stated Jake Spiegel, a senior research study partner for EBRI and author of the research study.

Almost three-quarters– 72%– of state and city government employees and 47% of private-sector employees have access to a health FSA in 2026, according to the Bureau of Labor StatisticsThat compares to 68% and 40%, respectively, in 2017.

FSAs vary from health cost savings accounts, or HSAs, which some individuals utilize in combination with high-deductible health insurance. Both let you set aside pretax cash for health care expenditures, HSAs let you roll over your balance from year to year, and even invest it.

Approximately a 3rd of FSA users in the EBRI database deal with a stringent use-it-or-lose-it arrangement, Spiegel stated. The rest either are allowed by their companies to rollover a quantity– as much as $680 in 2026– into the list below year or are used a grace duration of as much as 2.5 months after the due date to sustain extra expenditures or face forfeit. Companies can not provide both choices.

While numerous strategies have a Dec. 31 due date for costs FSA cash, some companies have due dates falling in other parts of the year, stated Rachel Rouleau, primary compliance officer for Health-E Commerce, moms and dad business of online merchants FSA Store and HSA Store.

“Understanding these plan-specific deadlines is essential, so employees should check with their employer or FSA administrator to avoid forfeiting unused funds,” Rouleau stated.

In addition, lots of companies offer you additional time– normally 3 months after the due date– to send invoices for certifying costs that happened throughout the previous strategy year.

For 2026, the optimum contribution enabled to health FSAs is $3,400. In 2027, that quantity will be $3,500, the IRS revealed Thursday.

Part of the factor employees have loss might be that they need to choose just how much they wish to add to their FSA before the strategy year starts.

“It’s difficult to project how much you’ll need to spend on health care, especially if you are particularly healthy and don’t have a chronic condition with predictable prescription drug costs,” Spiegel stated.

Contributions to FSAs are kept from incomes and usually prevent federal taxes, along with so-called payroll taxes– called FICA– that approach Social Security and Medicare. They likewise might prevent state and regional taxes, depending upon where you live.

To figure out just how much you’re conserving in taxes by utilizing an FSA, you can accumulate those tax rates and use the overall to your contribution, stated accredited monetary organizer Sean Lovison, creator of Purpose Built Financial Services in Moorestown, New Jersey.

State that your federal, FICA, state and regional taxes amount to 35% and you contributed the optimum permitted– $3,400 for 2026. In this case, the computation would lead to $1,190 in approximated tax cost savings, which is “how much you’re saving on taxes by contributing to your FSA,” Lovison stated.

The illustration presumes the employee gets no company contribution to the FSA and the tax rate uses to the whole contribution.

As long as the number you’re surrendering from your FSA is less than, you’re going to come out ahead.

“As long as the number you’re forfeiting from your FSA is less than that number, you’re going to come out ahead,” Lovison stated.

Obviously, he stated, “you don’t want to walk away from FSA money, but at the same time, from a mathematical standpoint, you’re still coming out ahead.”

If you deal with a forfeit, you can utilize it to assist notify your choice on just how much to put towards your FSA for 2027, if you have not currently made advantage elections for next year.

“Employees should look at their anticipated healthcare expenses over the coming year and consider both their daily health routines and expected annual expenses,” Rouleau stated. “This includes recurring prescriptions, doctor visits, copays, deductibles, dental and vision care, and other eligible out-of-pocket healthcare expenses for themselves and their eligible dependents.”

Before you resign yourself to a loss, remember that there are likewise lots of methods to utilize the cash on eligible costs before completion of the year.

“There are thousands of ways consumers can responsibly spend down their FSA dollars, from everyday healthcare essentials to eligible telehealth services,” Rouleau stated.

In addition, “many consumers are surprised to learn that a wide range of over-the-counter medications, menstrual care products, sunscreen, first-aid supplies and certain health-monitoring devices are FSA-eligible,” Rouleau stated.

That’s in addition to medical professional and dental professional consultations, prescription drugs and other health care services such as acupuncture and dependency treatment, according to the IRS.

If you’re uncertain whether you have cash staying in your FSA or require to invest it by the end of the year, the majority of strategies provide an online website where you can examine your balance, send claims and examine due dates. The FSA administrator’s info is normally noted on the back of your FSA card, Rouleau stated.