About half of people with a health care flexible spending account forfeited money to their employer in 2022, and the average loss was $441, according to an analysis of 3.2 million accounts by the Employee Benefit Research Institute. Every October, the advice for avoiding the FSA use it or lose it rule is the same: go buy sunscreen and a first aid kit before December 31. That helps a little. The bigger fix happens in open enrollment, which many employers are running right now, when you choose how much to put in for next year.
The FSA use it or lose it rule, and the two exceptions
An FSA lets you set aside part of your paycheck before taxes and use it for eligible medical costs. For plan years starting in 2026, the limit is $3,400. The catch, as HealthCare.gov puts it, is that money left at the end of the plan year or grace period is lost.
Your employer can soften that with one of two options, not both. A grace period gives you up to two and a half extra months to spend last year’s money. A carryover lets you roll an amount into the next year; the maximum is $680 for amounts carried from 2026 into 2027 plan years. Employers don’t have to offer either, and EBRI found that about a third of accounts in its database had no exception at all.
So the first thing to do this week is find out which one you have. It’s in your plan documents or on your FSA administrator’s website, and it changes everything below. If your plan has a $680 carryover and your projected leftover is under that, you don’t need to buy anything this fall.
A forfeited dollar costs more than twice an unused one
The shopping lists skip the more expensive problem, which is that putting too much in an FSA costs far more than putting too little in.
Take a hypothetical worker in the 22% federal bracket with no state income tax. FSA contributions also skip Social Security and Medicare taxes, which the Social Security Administration puts at a combined 7.65% for employees in 2026. Every dollar that goes into the FSA saves about 29.65 cents in taxes.
Now suppose this person elects $2,000 for the year but only has $1,400 of eligible expenses, in a plan with no carryover or grace period. The $600 left over is forfeited. They did save $177.90 in taxes on that $600 when it went in, so the net loss is $422.10.
Flip it around. They elect $1,400 and end up spending $2,000. The extra $600 gets paid with after-tax money, and the cost of the mistake is just the tax savings they missed: $177.90.
| Mistake (hypothetical, 29.65% combined tax rate) | Amount | Net cost |
|---|---|---|
| Elected $600 too much, forfeited | $600 | $422.10 |
| Elected $600 too little, paid after tax | $600 | $177.90 |
Over-electing costs 2.37 times as much as under-electing by the same amount. That gives you a useful rule for open enrollment: only add a dollar to your election if you’re at least about 70% sure you’ll spend it. At a higher tax rate, the threshold drops a bit; at a lower one, it rises.
Build next year’s FSA election from expenses you can name
The easiest way to get to that 70% confidence is to elect for the costs that recur on a schedule. Prescriptions you take every month, a known number of therapy or physical therapy copays, contact lenses on a fixed replacement cycle, your kid’s orthodontist payment plan, the dental crown your dentist already told you about. Add those up from this year’s receipts or your insurer’s claims history, and that’s your floor.
Then be stingy with everything else. A possible surgery, a vague plan to get new glasses, a pregnancy you hope for but haven’t started: those belong in an emergency fund or a health savings account if you have one, not in a use-it-or-lose-it account. If you do have an HSA-eligible plan, the guide to how health savings accounts work explains why that account doesn’t have this problem at all.
If your plan has a carryover, you can afford to aim a little higher, since up to $680 of a miss rolls forward. With a grace period, you get until mid-March to catch up. Without either, aim lower than feels comfortable.
Spend this year’s balance on things you’d buy anyway
For the 2026 balance you already have, the goal isn’t to spend it all on drugstore filler. Start with care you’ve been putting off and would pay for anyway: a dental cleaning you’re overdue for, a new pair of prescription glasses, a stock-up on contacts, a refill you can fill early. Those are real savings, because you’d have paid for them in after-tax dollars next year.
Only after that should you move to eligible over-the-counter items, and only ones you’ll use, like sunscreen, pain relievers, or a thermometer that works. Buying a $90 gadget you’ll never open just to avoid forfeiting $90 doesn’t save you anything.
Before you buy, check whether you’ve actually filed claims for what you’ve already spent. EBRI found that workers who submitted at least one claim manually, rather than relying only on automatic card substantiation, were 13 percentage points less likely to forfeit, and lost $114 less on average. Many people’s “leftover” balance is really a pile of receipts from copays, pharmacy runs, and lab bills they paid with a personal card and never submitted. Go through your insurer’s claims portal for the year and match it against your FSA account. You might find you’re closer to zero than you thought.
Dependent care FSA elections are easier to get right
If you pay for daycare, preschool, or after-school care, your employer may also offer a dependent care FSA, and the limit for 2026 is $7,500 per household ($3,750 if you’re married filing separately). That’s a lot of money to put in a use-it-or-lose-it account, but childcare is the rare expense you can usually predict to the dollar. You signed a contract, and the monthly tuition is on it.
The trap is a change you can see coming but forget to count. A child who starts public kindergarten next fall may need eight months of full-time daycare and then only after-school care. A summer camp you paid for this year might not run next year. Multiply the actual monthly cost by the months you’ll actually pay it, and use that number instead of the maximum. The same asymmetry applies: at a combined 29.65% tax rate, every dollar you forfeit costs about 70 cents, while every dollar you leave out costs about 30.
The October to-do list
The FSA use it or lose it rule punishes guessing, so take the guessing out. Look up your plan’s deadline and whether it has a grace period or a carryover. Pull your 2026 claims and submit anything you paid out of pocket. Then use this year’s real spending, not your hopes, to set the 2027 election, and only stretch it for expenses you’d bet 70 cents on the dollar you’ll actually have.
FSA rules depend on your employer’s plan and your own tax situation, so check the plan documents, and if the numbers are large, a tax professional can confirm how much an election is worth to you.
Sources: HealthCare.gov, Flexible Spending Accounts; Employee Benefit Research Institute, FSA analysis (May 2024); Social Security Administration, 2026 COLA fact sheet; Newfront, 2026 health FSA limits
