FSA grace period and rollover rules in 2026: the $680 carryover and the 2.5-month grace period, explained.
A health FSA runs on a use-it-or-lose-it rule — money you don't spend by your plan's deadline is forfeited back to your employer. Two optional relief mechanisms soften that: a $680 carryover (the 2026 limit) that rolls unused funds into next year, and a 2.5-month grace period that buys you extra time to spend. Your employer can offer one of them, not both, or neither. On top of that sits a separate window most people confuse with the grace period — the run-out period for submitting claims. Here's exactly how each one works, how they interact with your HSA eligibility, and what to do before your deadline hits.
The use-it-or-lose-it rule, and why it exists
A Flexible Spending Account is funded with pre-tax dollars under IRC §125 (the "cafeteria plan" section of the tax code). In exchange for that tax break, the IRS historically required that any money left at the end of the plan year be forfeited — you couldn't bank healthcare dollars tax-free indefinitely. That's the use-it-or-lose-it rule, and in its strictest form it still applies: if your plan offers no relief mechanism, every unspent dollar disappears at plan-year-end.
The "plan year" is the key phrase. For most employers it's the calendar year ending December 31, but plenty of plans run on a different cycle (July to June is common). Your deadline is tied to your plan year, not the calendar — so the first thing to confirm is when your plan year actually ends. You'll find it in your Summary Plan Description.
Over the years the IRS loosened the rule twice, because pure forfeiture pushed people to make panicked, wasteful December purchases. The result is the two relief options below. Critically, an employer is not required to offer either one — many do, but a plan with strict use-it-or-lose-it and nothing else is fully compliant and still common.
Relief option 1: the $680 carryover
The carryover (often called the rollover) lets you move up to a capped amount of unused health FSA funds into the next plan year, where you can spend it on top of your new election. The IRS created it in Notice 2013-71, which set the original cap at $500 and indexed it to inflation thereafter. The cap has climbed since: $640 for 2024, $660 for 2025, and $680 for plan years beginning in 2026. The indexed figure is published each year in the IRS revenue procedure that sets the year's contribution limits.
A few details that catch people:
- The cap is on what carries over, not on what you forfeit. If you have $1,200 left and your plan allows the $680 carryover, $680 rolls forward and the remaining $520 is forfeited.
- The carryover doesn't reduce next year's election. You can still elect the full annual maximum for the new year and stack the carried-over balance on top. So a $680 carryover plus a $3,400 election gives you $4,080 to spend that year.
- Carried-over funds usually don't expire again. Most plans let the carried-over amount keep rolling year after year as long as it's used, though plan rules vary — check whether yours caps the total or zeroes it after a period of no activity.
The carryover is the more flexible of the two relief options because it doesn't put you on a countdown clock. But it carries one significant catch for anyone who wants an HSA — covered further down.
Relief option 2: the 2.5-month grace period
The grace period predates the carryover. Instead of rolling money forward, it extends your deadline to incur new expenses by up to 2 months and 15 days after the plan year ends. For a calendar-year plan, that pushes your spending deadline from December 31 to March 15. During those extra weeks you can keep using leftover funds on eligible items as if the plan year were still running.
The grace period is all-or-nothing in a way the carryover isn't: whatever you don't spend by the end of the 2.5 months is forfeited, with no cap and no rollover. So if you finish the grace period with $900 unspent, the full $900 is gone — there's no $680 safety net, because that's the other mechanism.
Why would a plan choose the grace period over the carryover? It can suit accounts with larger typical balances, since the grace period has no dollar ceiling on what you can still use — you just have to spend it within the window. The carryover caps the rescued amount at $680 but gives you a full extra year. Neither is universally better; it depends on how much tends to be left over and whether you value time or a higher protected amount.
The run-out period: a different window people confuse with the grace period
This is the distinction that trips up the most people, so it's worth slowing down on. The run-out period (also called the claims-filing period) is the time after the plan year ends during which you can submit claims for expenses you already incurred during the plan year. It's commonly 60 to 90 days, set by your plan.
The difference matters:
- The grace period lets you spend on new purchases. You can walk into a pharmacy in February and buy eligible items with last year's leftover funds.
- The run-out period only lets you file paperwork. It's for the receipt from a December doctor visit you forgot to submit — the expense had to happen during the plan year (or grace period); the run-out window is just your deadline to turn in the claim.
Almost every FSA has a run-out period, because administrators need time to process year-end claims. The grace period, by contrast, is optional and rarer. A plan can have a run-out period and no grace period — that's the most common setup. So if your HR says you have until "March 31" to use your FSA, ask whether that's a grace period (spend on new things) or a run-out period (submit old receipts only). The two answers lead to completely different December decisions.
Quick comparison of the three windows
| Mechanism | What it does | Typical length / cap | Optional? |
|---|---|---|---|
| Carryover | Rolls unused funds into next plan year to spend on new expenses | Up to $680 (2026) | Employer-optional |
| Grace period | Extends deadline to incur new expenses | 2 months 15 days, no dollar cap | Employer-optional |
| Run-out period | Extends deadline to submit claims for already-incurred expenses | 60–90 days (varies) | Nearly always present |
The carryover and grace period are mutually exclusive — one or neither, never both. The run-out period is separate from both and can coexist with either.
If your plan is strict use-it-or-lose-it: the year-end spend-down
When your plan offers no carryover and no grace period, a forfeited dollar is a 100% loss — worse than not having contributed at all, since you skipped the tax win and still lost the cash. If you're heading into December with a balance, the move is a planned spend-down on things you'll genuinely use. Long-shelf-life essentials are the safest bet:
- Stock up on OTC essentials. Pain relievers, allergy meds, cold and flu medicine, first-aid supplies, sunscreen, contact solution, and period products are all reimbursable without a prescription since the CARES Act. They keep for a year or more and you'll use them anyway. Our FSA-eligible items guide has the full category list, including the surprising ones.
- Buy glasses and contacts. Schedule an eye exam, order prescription glasses or sunglasses, and stockpile a year's supply of contact lenses.
- Pre-pay dental work. A cleaning or a planned procedure you can schedule and pay for before the deadline counts.
- Refill prescriptions on a 90-day supply. Front-load maintenance medications before year-end so the cost lands inside the plan year.
- Buy planned medical equipment. A blood pressure monitor, thermometer, or heating pad you've been meaning to get is an easy way to clear a small balance.
Check your balance and your deadline in October, not December — that gives you time to schedule appointments rather than panic-buying on the 30th.
The carryover and HSA eligibility: the trap to plan around
This is the most consequential interaction, and it's easy to walk into by accident. To contribute to a Health Savings Account, you must be covered by a qualifying high-deductible health plan and have no other disqualifying health coverage. The IRS treats a general-purpose health FSA — the standard kind that covers medical, dental, and vision — as disqualifying coverage.
Here's the catch with the carryover: if you carry a general-purpose FSA balance into the next year, you're considered covered by that general-purpose FSA for the entire next year, even if it's just a few dollars. That blocks any HSA contribution for all twelve months — not a prorated slice, the whole year. People who switch to an HDHP in January specifically to start an HSA can lose the whole year of HSA contributions because a small FSA carryover followed them in.
There are two clean ways around it:
- Carry the balance into a limited-purpose FSA. A limited-purpose FSA covers only dental and vision, which the IRS does not treat as disqualifying coverage. Many employers let a general-purpose carryover convert into a limited-purpose FSA when you enroll in an HDHP, so the carryover survives and your HSA eligibility stays intact. Confirm your plan offers this conversion.
- Elect $0 for the new year. Some plans let you decline a general-purpose FSA election (or affirmatively choose the limited-purpose or HSA-compatible option) so the carryover doesn't keep you in disqualifying coverage. The mechanics depend entirely on your plan's design.
If you're weighing an FSA against an HSA in the first place, the structural trade-offs are laid out in our HSA vs FSA comparison. And because the tax math — pre-tax payroll deductions saving you federal income tax plus FICA — is identical for both accounts, you can model your own savings with the HSA tax calculator; the same payroll-deduction math applies to an FSA.
Dependent Care FSA: different rules entirely
If you have a Dependent Care FSA (the one that reimburses daycare and after-school care so you can work), don't assume any of the health FSA rules transfer. They mostly don't.
- No carryover. A Dependent Care FSA has never had a permanent carryover provision. The $680 rollover is a health-FSA-only mechanism.
- Grace period only. A Dependent Care FSA can offer the 2.5-month grace period, and many do, but unused funds beyond that window are forfeited with no rollover safety net.
- The COVID-era relief has expired. Special legislation temporarily allowed Dependent Care FSA carryovers for the 2020 and 2021 plan years. That relief lapsed and is no longer available — treat any older guidance referencing a dependent care carryover as outdated.
Because dependent care money is harder to spend down on short notice (you can't stockpile daycare), estimating your election carefully at open enrollment matters even more than it does with a health FSA.
How to find your actual deadline
Every point above resolves to one question: what does your plan do? The answer lives in two documents your employer is required to give you — the Summary Plan Description and the open-enrollment materials. Look for three things specifically:
- The plan year end date. Usually December 31, but verify.
- Which relief mechanism applies — carryover, grace period, or neither. The document will name it explicitly.
- The run-out (claims-filing) deadline — how many days after year-end you have to submit claims for already-incurred expenses.
If the language is unclear, your FSA administrator's portal or member services line can confirm it in a sentence. The question to ask is precise: "Does my plan have a carryover, a grace period, or neither — and what's my run-out deadline to file claims?" That one question settles every decision in this guide. If you'd rather get it in writing, your HR or benefits contact can point you to the plan document; for questions about this guide specifically, you can reach us at info@healthcosthub.com.
Frequently asked questions
Can my employer offer both the carryover and the grace period?
No. IRS rules let a health FSA offer one or the other, but not both. An employer can offer the $680 carryover, the 2.5-month grace period, or neither (strict use-it-or-lose-it). Check your Summary Plan Description to see which one your plan uses — it determines exactly when your money disappears.
What's the difference between the grace period and the run-out period?
The grace period extends the time to incur new expenses — you can keep spending leftover funds for up to 2 months and 15 days after the plan year ends. The run-out (or claims-filing) period extends the time to submit claims for expenses you already incurred during the plan year; it's commonly 60 to 90 days. The run-out period does not let you spend on new purchases. Nearly every plan has a run-out period; the grace period is optional.
How much can I carry over to 2026?
Up to $680 of unused health FSA funds for plan years beginning in 2026, if your employer offers the carryover. The limit is indexed annually by the IRS — it was $640 for 2024 and $660 for 2025. Anything above the carryover cap is forfeited under the use-it-or-lose-it rule.
Does an FSA carryover block me from contributing to an HSA?
A general-purpose health FSA carryover balance does. Carrying any amount into the next year keeps you covered by a general-purpose FSA for that whole year, which disqualifies you from making HSA contributions. You avoid this by carrying the balance into a limited-purpose (dental and vision only) FSA, or by electing $0 in the next year so the carryover converts to a limited-purpose or HSA-compatible arrangement, depending on your plan's design.
Does a Dependent Care FSA have a carryover?
No. A Dependent Care FSA has never had a permanent carryover. It can offer the 2.5-month grace period, but unused dependent care funds beyond that are forfeited. The temporary carryover relief that applied to 2020 and 2021 plan years under COVID-era legislation has expired and is no longer available.
When exactly do my FSA funds expire?
It depends entirely on your plan design. Under strict use-it-or-lose-it, unused funds are forfeited at the end of the plan year. With a carryover, up to $680 rolls forward and the rest is forfeited. With a grace period, you have until 2 months and 15 days after year-end to incur new expenses. Read your plan documents — the deadline that matters is yours, not a universal calendar date.
Bottom line
The use-it-or-lose-it rule still governs every FSA, but two optional employer mechanisms soften it: a $680 carryover for 2026 that rolls funds forward, or a 2.5-month grace period that extends your spending deadline — one or the other, never both, and sometimes neither. Don't confuse either with the run-out period, which only extends your deadline to file claims for expenses you already incurred. If you're eyeing an HSA, watch the carryover trap: a general-purpose FSA balance following you into the new year blocks HSA contributions for all twelve months unless it converts to a limited-purpose FSA. Find your plan year, your relief mechanism, and your run-out date — then spend or carry accordingly before the clock runs out.
Reference information only — not tax or financial advice. FSA plan designs, IRS carryover limits, and grace-period rules change and vary by employer; confirm your specific deadlines and relief mechanism with your plan administrator. Last updated June 2026.