Context:

Health FSAs offer pre-tax dollars for medical costs but many funds go unused each year, with about 40% of account holders forfeiting an average of $404 in 2024. The landscape shows that even partial forfeitures can still be advantageous compared with using after-tax dollars, depending on tax savings and specific plan rules. Access to FSAs has grown since 2017, and plans vary on whether funds can roll over up to $680 or be kept via a grace period, while deadlines and eligibility differ by employer. Looking ahead, 2026 and 2027 updates raise contribution limits and highlight the importance of planning for anticipated healthcare costs, as well as checking plan-specific deadlines to avoid forfeiture.

Dive Deeper:

• The study by the Employee Benefit Research Institute analyzed more than 3.3 million FSA accounts representing $3.9 billion in contributions to gauge how common forfeitures are and how much is typically forfeited.

• In 2024, about four in ten health FSA holders forfeited unused money, with the average forfeiture amount at $404, down slightly from $436 in 2023, indicating modest improvement but persistent use-it-or-lose-it risk.

• Even when funds are forfeited, workers can still come out ahead relative to not participating in an FSA if the tax savings from contributing exceed the forfeited amount, a calculation that depends on total marginal tax rates and specific plan contributions.

• For 2026, the maximum health FSA contribution is $3,400, rising to $3,500 in 2027, and plans may allow a carryover up to $680 or a grace period of up to 2.5 months, though employers cannot offer both options simultaneously.

• Access to FSAs has expanded: about 72% of state/local government workers and 47% of private-sector workers have access in 2026, up from 68% and 40% in 2017, reflecting broader adoption across sectors.

• Differences between FSAs and HSAs are noted, with HSAs allowing year-to-year balance rollovers and potential investment, influencing decisions on how much to contribute to an FSA given anticipated expenses and rollover preferences.

• To avoid forfeiture, workers should assess expected healthcare needs for the coming year, including recurring prescriptions and deductible expenses, and verify plan-specific deadlines and any extended submission windows with their administrator.