Just How Strict Is the 12/31 FSA Deadline?

December 31 is a very common deadline for Flexible Spending Account (FSA) plans, but it doesn't apply to all FSA holders. So, how do you know if it applies to yours? It’s important to be sure — after all, if you don’t use all of your FSA funds within your plan year, you may lose what’s leftover.

If you’re wondering about your FSA deadline, the first thing you should do is contact your benefits administrator or HR representative to make sure you know when it is — and what your options are.

Remember, FSAs, unlike health savings accounts (HSAs), require you to use your funds by a specific date — and they have a use-it-or-lose-it provision. In other words, the money you’ve contributed to your FSA may disappear if you don’t spend it by your plan year deadline, which is commonly December 31. Employers have the option to let you roll over a specific amount of unused money into the next year’s account (called a carryover or rollover), but not all companies offer this perk. Employers also have the option of offering a 2.5 month grace period from the end of the plan year in which you can continue to spend your leftover FSA funds.

How FSA grace periods work

Funds remaining in your FSA from the prior plan year can be used to pay for eligible medical expenses accrued during a 2.5-month grace period. (Essentially, the grace period extends the plan year to 14 months and 15 days, as opposed to the 12-month actual plan.) For calendar year plans, the grace period normally begins January 1 and ends March 15. At the end of the grace period, you will lose all of the previous year’s money that’s still left in the account.

Claims submitted during the grace period are automatically taken out of the prior year's remaining funds before drawing from the current plan year. The same applies if you use your FSA debit card to pay for the expenses: The prior year's remaining funds will be available on the debit card through the end of the grace period. When you swipe your card, any leftover funds from the previous year will be used first, then the card will use funds from the current year.

Grace period vs. carryover provision

Employers can provide a grace period or a carryover provision for FSAs, but not both. A carryover provision allows you to carry over a certain sum for the next plan year without a time limit on when you have to use it: The maximum amount allowed by the IRS is $660 for plan years ending in 2025.

It is important to remember that with a grace period, you have until March 15 of the following year to incur eligible expenses. You may also have a 90-day run-out period, which would give you until March 30th to submit all claims for expenses incurred from the beginning of the previous plan year up until March 15th. After the run-out period expires, all unused funds are forfeited.

Can you use this year's FSA funds for prior year expenses?

No. You must incur expenses during the current plan year. The only exception to this rule is orthodontics: You can use your FSA funds to pay for braces, even if the braces were put on before the start of the current plan year.

What happens to unused FSA funds?

Unused FSA money is returned to your employer. The funds can:

Be used to offset administrative costs incurred during the plan year
Go toward reducing annual premiums in the next FSA year
Be equally distributed to employees who enroll in an FSA for the next year

The bottom line

No matter what your plan’s rules are, it's a good idea to comb through your current year’s expenses to see if you've already made claims on them. (This is one reason it’s important to keep track of your receipts and invoices.)

If you have a runout period, make sure you incur expenses before the plan year ends (including any extension you may have via a grace period.) Then, make sure you submit those expenses for reimbursement within your 90-day window.

If you have a grace period, make sure you budget accordingly so you can use up any remaining funds. Let's say you still have $200 left to spend and your employer allows you to spend those funds until March 15. Make a budget and figure out what qualified medical expenses you may have so that you're prepared. (Need ideas? Take a look at these best sellers.)

If your employer offers a rollover option, make sure you spend any funds you're carrying over, along with the money you elected to contribute to your FSA in the upcoming year.

Regardless of your plan’s offerings, you’ll want to spend some time thinking about your expenses for the past year, and how the next year is likely to go. Planning ahead can help you budget your spending and make sure you use your FSA funds the best possible way. Were you on track with your FSA spending needs for the previous year, or close to it? Are there new health expenses you may have in the upcoming year that you didn’t have previously? It's worth taking the time to make an FSA budget, because your savings can be pretty significant. Need help? Try our FSA Calculator.

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