- About 4 in 10 health FSA holders forfeited unused balances in 2024, with an average forfeiture of $404 among those who lost funds, according to new research from the Employee Benefit Research Institute.
- However, a worker may still come out ahead if the tax savings from participating in the FSA exceed the amount ultimately forfeited.
- Nevertheless, it's still worth looking for ways to spend the remaining balance on services or products.
Health flexible spending accounts, or FSAs, are tax-advantaged accounts that let workers set aside pretax money to cover eligible health expenses. However, they're often use it or lose it, with unspent balances forfeited at the end of the plan year.
About 4 in 10 workers with health FSAs forfeited unused money in 2024, according to an October report from the Employee Benefit Research Institute, a nonprofit research organization. Among those FSA account holders, the average forfeiture was $404, down from $436 in 2023. The research examined more than 3.3 million accounts representing $3.9 billion in contributions.
Yet even workers who don't zero out their balance may still benefit from using an FSA, compared with what they would have spent using after-tax dollars to cover the same expenses.
"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," said Jake Spiegel, a senior research associate for EBRI and author of the study.
One-third of FSA holders face use it or lose it
Nearly three-quarters — 72% — of state and local government workers and 47% of private-sector workers have access to a health FSA in 2026, according to the Bureau of Labor Statistics. That compares with 68% and 40%, respectively, in 2017.
FSAs differ from health savings accounts, or HSAs, which some people use in conjunction with high-deductible health plans. Although both let you set aside pretax money for health care expenses, HSAs let you roll over your balance from year to year, and even invest it.
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Roughly a third of FSA users in the EBRI database face a strict use-it-or-lose-it provision, Spiegel said. The rest either are permitted by their employers to carry over an amount — up to $680 in 2026 — into the following year or are offered a grace period of up to 2.5 months after the deadline to incur additional expenses or face forfeiture. However, employers cannot offer both options.
While many plans have a Dec. 31 deadline for spending FSA money, some employers have deadlines falling in other parts of the year, said Rachel Rouleau, chief compliance officer for Health-E Commerce, parent company of online retailers 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 said.
Additionally, many employers give you extra time — typically three months after the deadline — to submit receipts for qualifying expenses that occurred during the previous plan year.
How to calculate your financial benefit
For 2026, the maximum contribution allowed to health FSAs is $3,400. In 2027, that amount will be $3,500, the IRS announced Thursday.
Part of the reason workers have forfeitures may be that they must decide how much they want to contribute to their FSA before the plan year begins.
"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 said.
watch nowVIDEO2:5802:58Companies can do more to help employees stay financially afloat: DailyPay's Nelson ChaiContributions to FSAs are withheld from paychecks and generally avoid federal taxes, as well as so-called payroll taxes — known as FICA — that go toward Social Security and Medicare. They also may avoid state and local taxes, depending on where you live.
To determine how much you're saving in taxes by using an FSA, you can add up those tax rates and apply the total to your contribution, said certified financial planner Sean Lovison, founder of Purpose Built Financial Services in Moorestown, New Jersey.
For example, say that your federal, FICA, state and local taxes total 35% and you contributed the maximum allowed — $3,400 for 2026. In this case, the calculation would result in $1,190 in estimated tax savings, which is "how much you're saving on taxes by contributing to your FSA," Lovison said.
The illustration assumes the worker receives no employer contribution to the FSA and the tax rate applies to the entire contribution.
As long as the number you're forfeiting from your FSA is less than [your tax savings], you're going to come out ahead.Sean LovisonFounder of Purpose Built Financial Services
"As long as the number you're forfeiting from your FSA is less than that number, you're going to come out ahead," Lovison said.
Of course, he said, "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 face a forfeiture, you can use it to help inform your decision on how much to put toward your FSA for 2027, if you haven't already made benefit 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 said. "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."
'Thousands' of ways to spend unused balance
Before you resign yourself to a forfeiture, keep in mind that there are also many ways to use the money on eligible expenses before the end 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 said.
Additionally, "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 said.
That's in addition to doctor and dentist appointments, prescription drugs and other healthcare services such as acupuncture and addiction treatment, according to the IRS.
If you're unsure whether you have money remaining in your FSA or need to spend it by the end of the year, most plans offer an online portal where you can review your balance, submit claims and check deadlines. The FSA administrator's information is typically listed on the back of your FSA card, Rouleau said.
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