Use Your FSA by Dec. 31, 2026: The $680 Carryover, the March 15 Grace Period, What You Can Still Buy — and How Much to Elect for 2027 ($3,500 Projected)

Over-the-counter medicine, prescriptions and copays all qualify, so a leftover health FSA balance is easy to use before your plan's deadline. Photo: Kampus Production / Pexels (8657375), Pexels License.

Last updated Oct. 17, 2026. Limits, deadlines and rules below were checked against the IRS and the other sources linked in each section on Oct. 17, 2026.

If you put money into a health care flexible spending account (FSA) through work this year, check the balance this weekend. Most health FSAs are use-it-or-lose-it. Whatever is left at the end of the plan year goes back to your employer unless your plan has one of two exceptions. For most calendar-year plans, that deadline is Thursday, Dec. 31, 2026, about 10 weeks from now.

Many people miss it. The Employee Benefit Research Institute (EBRI) tracks FSA accounts, and its latest database update found that roughly half of FSA holders forfeited money in 2023, and the average forfeiture was $436. The timing is bad, too. Open enrollment for 2027 is happening now at many employers, so you're being asked to pick next year's amount before this year's money is used up.

This guide covers both decisions. First, how to find your real deadline: Dec. 31, a March 15 grace period, or a carryover of up to $680. Then what you can still buy with the money, which carryover mistake can cost an HSA saver thousands, and how to size your 2027 election, when the limit is projected to rise to $3,500.

The 30-second version

• 2026 limits (official): up to $3,400 in salary reductions. If your plan allows a carryover, up to $680 of unused money can roll into 2027, per the IRS's tax-year 2026 inflation adjustments.
• Your deadline depends on your plan. It's either Dec. 31 (strict use-it-or-lose-it), a grace period of up to 2½ months (usually March 15, 2027), or a carryover (up to $680, and anything above that is forfeited). A plan can offer a grace period or a carryover, but not both.
• The claims deadline is different from the spending deadline. Many plans give you until March 31 or later to submit receipts for 2026 expenses. The expenses themselves still had to happen in time.
• Switching to an HSA for 2027? A carryover into a general-purpose FSA can make you ineligible to contribute to a health savings account for all of 2027. Spend the FSA down to $0, decline the carryover, or move it to a limited-purpose FSA.
• 2027 election: projected at $3,500 with a $700 carryover (Mercer and Thomson Reuters estimates). The IRS hasn't published the official numbers yet. At most employers you must re-elect every year.

How a health FSA works, and why the deadline exists

A health FSA is an employer benefit. You choose an annual amount during open enrollment, and it comes out of each paycheck before federal income tax and before Social Security and Medicare (FICA) taxes. IRS Publication 969 puts it plainly: "No employment or federal income taxes are deducted from the contributions," and reimbursements for qualified medical expenses are tax-free. Self-employed people can't have one, and you can't open one on your own. It only exists through an employer plan.

Two rules make an FSA different from a savings account:

• Uniform coverage. Your whole annual election is available from the first day of the plan year, even though you fund it a paycheck at a time. Publication 969 says you "must be able to receive the maximum amount of reimbursement ... at any time during the coverage period, regardless of the amount you have actually contributed."
• Use it or lose it. In exchange, the money is tied to a plan year. Publication 969 says FSAs "are generally 'use-it-or-lose-it' plans," and the employer "isn't permitted to refund any part of the balance to you."

So the FSA is a trade. You get an immediate tax break and money available on day one. In return, you have to estimate your spending well. If you're not sure whether an FSA or an HSA fits you better, our HSA vs. FSA comparison walks through the differences.

Find your real deadline: three plan types

Your employer chooses which of these applies, and the choice is in your plan's summary plan description or benefits portal. It's worth five minutes to find out, because the strategies differ.

Plan design	Spend-by date for 2026 money (calendar-year plan)	What happens to leftovers
Strict use-it-or-lose-it	Expenses must be incurred by Dec. 31, 2026	Everything unspent is forfeited after the claims run-out period
Grace period	Up to 2½ extra months, usually through March 15, 2027	Leftover 2026 money pays for expenses incurred in the grace period; the rest is forfeited
Carryover	Dec. 31, 2026 for the full balance	Up to $680 (or a lower plan cap) rolls into 2027; anything above it is forfeited

The IRS rules are in Publication 969 and IRS Notice 2013-71, which created the carryover option. The notice says a plan with a carryover "would not be permitted to have a grace period" for the same year, so you'll have one or the other. Carried-over money also doesn't count against the next year's contribution limit. With the maximum carryover, you could have $3,400 of new 2027 money plus up to $680 left from 2026.

How common is each design? Estimates vary. CNBC, citing EBRI research, reported that about two-thirds of employers use a strict use-it-or-lose-it rule and roughly a third offer a grace period or carryover. FSA Store, a retailer that sells only FSA-eligible products, estimated in a January 2026 release that about 70% of account holders have some kind of deadline extension. Don't assume either way. Check your own plan.

The run-out period trap

Most plans also have a run-out period, often through March 31 of the next year, for submitting claims. It's easy to confuse with a grace period, but it isn't one. A run-out period lets you file paperwork for a December eye exam in February. It doesn't let you buy new glasses in February with 2026 money. Under Publication 969, the FSA reimburses expenses "incurred during the period of coverage," and it "can't make advance reimbursements of future or projected expenses." Paying in December for a service you'll get in January generally doesn't count. The service has to happen in time.

Plan-specific fine print

Plans can set rules that are tighter than the IRS's. Some cap the carryover below $680. Some require you to re-enroll for 2027 to keep a carryover, or require a minimum leftover balance before anything rolls. Washington State's public-employee plan, for example, ties its carryover to re-enrolling or keeping at least a minimum balance. Plans that don't run on the calendar year have different dates. A July-to-June plan, for instance, ends on June 30.

Is the FSA still worth it if you forfeit some money?

Usually, yes. Every dollar you elect skips federal income tax and the 7.65% employee FICA tax, up to the Social Security wage base. In most states it skips state income tax too, though state rules vary. Because of that, you can forfeit a little and still come out ahead.

Here's the simple math. Say you elect amount E and your combined tax rate is t. Your take-home pay drops by only E × (1 − t). If you spend S of the money on things you'd have bought with after-tax dollars anyway, you're ahead by S − E × (1 − t). That works out to this rule: you come out ahead as long as the amount you forfeit is smaller than E × t, the tax you saved.

Federal bracket	Combined rate (bracket + 7.65% FICA)	Tax saved on a $3,400 election	Forfeit up to this and still break even
10%	17.65%	$600	$600
12%	19.65%	$668	$668
22%	29.65%	$1,008	$1,008
24%	31.65%	$1,076	$1,076

Dollar Lane calculation. State tax is ignored; including it raises the savings. For people whose wages exceed the Social Security wage base, the FICA saving falls to 1.45%.

So the $436 average forfeiture doesn't mean FSAs are a bad deal. It means people pay a "deadline tax" they didn't have to. A person in the 22% bracket who maxes out at $3,400 and forfeits $436 still nets about $572. If they'd spent the whole balance, they'd have kept the full $1,008. The goal is to spend everything you can on things you'd buy anyway.

A maxed-out 2026 health FSA saves $600 to $1,076 in federal tax and FICA, more than the $436 average forfeiture. Dollar Lane calculation using the IRS 2026 limit (Rev. Proc. 2025-32); forfeiture data: EBRI. Chart: Dollar Lane (original).

What you can still buy before your deadline

Qualified expenses are generally those that would count for the medical expense deduction in IRS Publication 502, limited to what your plan covers. Since 2020, Publication 969 also confirms that over-the-counter medicine, with or without a prescription, and menstrual care products count. Here's a practical spend-down list, roughly from biggest to smallest ticket:

Bigger-ticket items (plan these first)

• Eyeglasses, prescription sunglasses and contact lenses, including a year's supply of contacts. Also the eye exam. Pub. 502 lists all three.
• Laser eye surgery (LASIK). Pub. 502 includes eye surgery to treat defective vision.
• Dental work: fillings, crowns, cleanings and dentures. Cosmetic teeth whitening doesn't count.
• Hearing aids and their batteries, including over-the-counter hearing aids.
• Deductibles, copays and coinsurance for doctor visits, therapy, imaging, labs and hospital stays. If you've already met your 2026 deductible, scheduling care before Dec. 31 makes sense, as long as it's care you actually need.
• Prescriptions, including a refill before year-end.

Glasses, contacts and eye exams are among the biggest FSA-eligible purchases. The exam or fitting has to happen before your deadline, not just be paid for. Photo: Kampus Production / Pexels (5752308), Pexels License.

Everyday items (good for clearing a small balance)

• Pain relievers, allergy, cold and flu medicine, antacids, sleep aids and other OTC drugs.
• Menstrual pads, tampons, cups and similar products.
• Diagnostic devices: thermometers, blood-pressure monitors and glucose meters (Pub. 502).
• Bandages, first-aid kits, reading glasses, contact solution and condoms. All appear in Pub. 502's list or are routinely approved by FSA administrators.
• Breast pumps and lactation supplies, and acupuncture or chiropractor visits (Pub. 502).

Many administrators also approve items such as broad-spectrum SPF 15+ sunscreen or a heating pad. Those decisions are made by your plan, not the IRS, so check your administrator's eligible-expense list before you buy. Keep every itemized receipt, even when you pay with the FSA debit card. Card swipes sometimes trigger a later request for documentation, and Pub. 969 requires a third-party statement of the expense.

What does not qualify

• Health insurance premiums and long-term care. Pub. 969 lists both as off limits for FSA reimbursement.
• Gym memberships (health club dues), teeth whitening, cosmetic surgery and general-health vitamins or supplements. All appear on Pub. 502's "not includible" list unless a narrow medical exception applies.
• Prepaying for 2027 care, as covered above.
• Child care. That goes through a separate dependent care FSA, which has its own $7,500 household limit for 2026 and no carryover. See our dependent care FSA guide.

Worked example: a $1,050 balance on Oct. 17

Maria is single, in the 22% bracket, and elected $2,400 for 2026 ($200 a month). By mid-October she has been reimbursed for $1,350, so $1,050 is left. Here's what happens under each plan design if she does nothing more:

• Strict use-it-or-lose-it: she forfeits $1,050. That's more than her $712 tax saving on the $2,400 (29.65% × $2,400), so the FSA would have cost her money this year.
• Carryover plan ($680 cap): $680 rolls into 2027 and she forfeits $370.
• Grace period plan: she has until March 15, 2027 to incur expenses. She could use the $1,050 for new glasses in February, for example.

Her spend-down plan for a strict plan: an eye exam plus new glasses not fully covered by vision insurance (about $350 out of pocket), a dental crown copay she was putting off ($450), a year's supply of contacts ($180) and $70 of OTC allergy medicine and first-aid supplies. That's $1,050, all things she'd have paid for with after-tax money in early 2027 anyway. If your vision or dental plan is part of the decision, our dental and vision insurance break-even guide shows how the FSA and those plans work together.

The carryover mistake that can block a 2027 HSA

This one matters during open enrollment. If you're moving to a high-deductible health plan (HDHP) for 2027 so you can contribute to a health savings account (HSA), a leftover general-purpose FSA balance can get in the way.

An HSA requires that you have no other health coverage that pays before the deductible, and a general-purpose health FSA counts as that kind of coverage. In Chief Counsel Advice 201413005, the IRS's lawyers concluded that someone covered by a general-purpose health FSA only because of a carryover is still not HSA-eligible. That lasts for the whole plan year, even after the carried-over money is spent. The same memo outlines the fixes, which your plan may or may not offer:

• Have the carryover moved into an HSA-compatible limited-purpose FSA, which covers only dental and vision, or a post-deductible FSA.
• Decline or waive the carryover before the new year, if your plan allows it.
• Or spend the general FSA balance down to $0 by Dec. 31.

Grace periods work in a similar way. Pub. 969 says grace-period coverage under a general-purpose FSA is allowed for HSA purposes only "if the balance in the health FSA at the end of its prior-year plan is zero."

Here's what's at stake. For 2027, IRS Revenue Procedure 2026-24 sets the HSA limit at $4,500 self-only and $9,000 family, with HDHP minimum deductibles of $1,750 and $3,500. A family in the 22% bracket contributing through payroll saves roughly $2,669 in federal tax and FICA on $9,000. Letting a $300 FSA carryover block that would be an expensive mistake. Our HDHP vs. PPO guide for 2027 has the full break-even math.

How much to elect for 2027

The IRS usually announces next year's health FSA numbers in October or November. As of this weekend, they aren't out. Benefits consultant Mercer (now part of Marsh) projects the 2027 salary-reduction limit at $3,500 and the maximum carryover at $700. Thomson Reuters and administrators such as EBC show the same figures. Some employers are already using $3,400 as a placeholder cap in their 2027 enrollment materials until the IRS confirms. If the official limit comes in higher, your employer may let you increase your election, but don't count on it.

A five-step way to size your election

1. Start with what's certain. Add up recurring prescriptions, planned therapy or chiropractic visits, scheduled dental work, and glasses or contacts. Use your 2026 claims history as a guide; your FSA portal shows it.
2. Add your likely deductible and copays. If you're keeping the same plan, last year's out-of-pocket total is a good starting point. If you're changing plans, use the new plan's deductible and copays. Our open enrollment guide explains how to compare them.
3. Use the carryover as a cushion. If your plan has a carryover, you can elect slightly above your firm estimate, since up to $680 (projected $700 for 2027 balances) isn't lost.
4. Don't max it out by default. Under a strict use-it-or-lose-it plan, elect your confident number, not your hopeful one. The break-even table above shows how much cushion your tax rate gives you.
5. Time big expenses for early in the year. Because of uniform coverage, an election of $3,400 paid as about $130.77 per paycheck over 26 paychecks is fully available on Jan. 1, 2027. A January LASIK surgery or orthodontic payment can use the whole amount at once.

Example: a family of four sizing 2027

Dan and Priya file jointly in the 24% bracket and are staying on their PPO. Expected 2027 costs: 12 copays at $30 ($360), two children's maintenance prescriptions at $25 a month ($300 a year each, $600 total), two pairs of glasses and contacts ($700), and orthodontic installments ($1,200). That's $2,860. Their plan carries over up to the IRS maximum. They elect $2,900, slightly above their estimate because the carryover covers a small miss, and save about $918 in federal tax and FICA (31.65% × $2,900). If they used a strict plan, they'd elect closer to $2,600 and add more only if a planned procedure gets scheduled.

If you might leave your job

Uniform coverage works both ways. If you spend your full annual election in March and then quit, you generally don't owe the unfunded part back. That's the employer's risk. If you leave with money still in the account, though, you usually lose it unless you continue the FSA through COBRA, typically for the rest of the plan year. If a job change is likely, spend early in the year and consider a smaller election.

Year-end FSA checklist

• ☐ Log in to your FSA portal and write down your available 2026 balance today.
• ☐ Find your plan type: strict, grace period (to March 15?) or carryover (cap $680 or lower?).
• ☐ Note the claims run-out deadline for submitting 2026 receipts (often March 31, 2027).
• ☐ Submit any unreimbursed 2026 receipts now: pharmacy, copays, dental, vision.
• ☐ Book appointments that need to happen before Dec. 31 (eye exam, dental, physical therapy). December calendars fill up.
• ☐ Buy glasses, contacts or hearing-aid supplies if you'll need them in early 2027 anyway.
• ☐ Clear any small leftover balance on OTC medicine, first-aid and menstrual products, and keep the receipts.
• ☐ Moving to an HDHP and HSA for 2027? Get the general FSA to $0, or set up the limited-purpose FSA or carryover waiver before Jan. 1.
• ☐ During open enrollment, actively re-elect a 2027 amount. Most plans don't roll your election forward.
• ☐ Set a calendar reminder for early 2027 to check whether a carryover arrived and to use any grace-period money by March 15.

FAQ

What happens to unused FSA money on Dec. 31, 2026?

In a strict use-it-or-lose-it plan, it's forfeited to your employer after the claims run-out period. If your plan has a carryover, up to $680 (or your plan's lower cap) rolls into 2027 and the rest is forfeited. If it has a grace period, you can keep incurring expenses with 2026 money for up to 2½ months, usually through March 15, 2027.

Can my employer give me the leftover money in cash?

No. Publication 969 says the employer "isn't permitted to refund any part of the balance to you." Employers can use forfeitures to cover plan costs, but not to pay you back individually.

Does the $680 carryover reduce my 2027 limit?

No. Under Notice 2013-71, carried-over amounts don't count against the next year's salary-reduction limit. You could elect the full 2027 maximum on top of a carryover.

Can I use my FSA for my spouse or my 25-year-old?

Generally yes. Pub. 969 covers expenses for you, your spouse, your dependents and your child under age 27 at the end of the tax year, even if that child isn't your dependent.

Are over-the-counter medicines really eligible without a prescription?

Yes. Since 2020, OTC medicine "whether or not prescribed" and menstrual care products count as medical care for FSAs, according to Pub. 969.

Can I change my FSA election in the middle of 2027?

Only if your plan allows it and you have a qualifying change in status, such as marriage, divorce, birth or adoption. Otherwise the election you make during open enrollment is locked for the year.

What are the official 2027 FSA limits?

The IRS hasn't published them as of Oct. 17, 2026. The projected figures are $3,500 for contributions and $700 for the carryover. We'll update this post when the IRS releases its revenue procedure.

Bottom line

A health FSA is one of the few tax breaks that saves you both income tax and FICA, and it saves the most for people who estimate well. Spend this weekend's five minutes finding your plan type and balance. Then use the next 10 weeks to spend down on care and supplies you'd buy anyway, keep the carryover from blocking a new HSA, and pick a confident, not hopeful, number for 2027.

Sources

• IRS: 2026 inflation adjustments ($3,400 FSA limit, $680 carryover); Rev. Proc. 2025-32; Publication 969; Publication 502; Notice 2013-71; Chief Counsel Advice 201413005; Rev. Proc. 2026-24 (2027 HSA limits).
• Research and projections: EBRI FSA Database update; Mercer 2027 health FSA projection; EBC projected 2027 limits; Thomson Reuters 2027 figures.
• News and plan examples: CNBC on FSA deadlines; FSA Store release (Jan. 28, 2026); Washington State HCA FSA rules; HealthCare.gov on FSAs.

Disclaimer: Dollar Lane publishes general U.S. personal-finance education for a USA audience. It is not tax, legal, medical or benefits advice. Examples are simplified Dollar Lane calculations of federal income tax and FICA using official IRS figures as of Oct. 17, 2026, and they ignore state taxes. The 2027 health FSA figures are third-party projections until the IRS publishes them. Your employer's plan document controls deadlines, carryover caps and eligible expenses, so confirm with your plan administrator or HR before you buy.