2026 FSA Carryover vs. Grace Period: Don't Lose Your Funds
FSA Carryover vs. Grace Period in 2026: How to Protect Your Unused Funds
Note: Date examples in this guide assume a calendar-year health FSA. Non-calendar-year plans can have different deadlines.
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| Understand your specific FSA deadlines to avoid losing unused funds at year-end. |
Official 2026 Health FSA Limits and IRS Rules
As of August 23, 2026, the IRS has confirmed the inflation-adjusted limits for health flexible spending accounts (FSAs) for 2026. These figures are especially important for employees reviewing their current FSA balance or preparing for the next open enrollment period.
| FSA Feature (2026 Plan Year) | 2026 IRS Rule / Maximum |
|---|---|
| Employee Salary Reduction Contribution | $3,400 |
| Maximum Carryover to the Following Plan Year | $680 |
| Maximum Grace Period | Up to 2 Months and 15 Days |
Source: IRS Revenue Procedure 2025-32
Carryover vs. Grace Period: Which One Do You Have?
A health FSA can offer either a carryover or a grace period, or neither, but it cannot offer both for the same plan year under the standard IRS rules. Knowing which feature your employer has adopted can change your spending strategy significantly.
1. The Carryover Option ($680 Maximum)
If your plan allows a carryover, it may let you move up to $680 of unused 2026 funds into the following plan year. Your employer can set a lower carryover limit or choose not to offer a carryover at all. For a calendar-year plan, the permitted carryover can be used for eligible expenses incurred during the following plan year.
The amount available for carryover is generally determined after eligible claims from the prior plan year have been processed during the plan’s run-out period. Any remaining amount above your plan’s permitted carryover limit is then forfeited.
2. The Grace Period Option (Up to 2 Months and 15 Days)
A grace period gives you up to an extra 2 months and 15 days after the end of the plan year to incur new eligible expenses using unused funds from the previous plan year. For a calendar-year plan using the full grace period, that generally means through March 15.
Unlike the carryover rule, the IRS does not impose the same $680 cap on the amount available during a grace period, although an employer’s plan may limit the amount. Any unused funds remaining after the applicable grace period are generally forfeited.
3. The Run-out Period (Administrative Time)
A run-out period is not extra time to incur new expenses. It is additional time to submit claims and supporting documentation for eligible expenses that were incurred during the plan year or, if applicable, during the grace period. For example, if you have dental surgery on December 31, 2026, and your plan’s run-out period ends March 31, 2027, you may have until March 31 to submit that claim.
⚠️ The HSA Eligibility Trap
Be careful when moving from a general-purpose health FSA to an HSA-eligible high-deductible health plan (HDHP). General-purpose FSA coverage can make you ineligible to contribute to an HSA for months in which that disqualifying coverage continues, including situations involving a carryover.
If you plan to become HSA-eligible in 2027, ask your HR department or plan administrator whether your plan allows unused amounts to move into an HSA-compatible limited-purpose FSA, or whether another plan-specific option is available to preserve HSA eligibility.
How to Avoid Losing Your FSA Balance
- ✔ Check your current balance: Don’t rely on your original election amount; look at your remaining spendable balance on your administrator’s portal.
- ✔ Verify service dates: For FSA purposes, expenses are generally incurred when the medical care or service is provided, not when you pay the bill. You generally cannot prepay for a future 2027 medical service with 2026 FSA funds.
- ✔ Gather itemized receipts: Some FSA debit-card transactions require additional substantiation. Keep documentation showing the provider or merchant, date of service or sale, description of the service or item, and amount.
Frequently Asked Questions (FAQ)
Can I have both a carryover and a grace period?
No. Under the standard IRS rules for health FSAs, a plan may offer a carryover, a grace period, or neither, but it cannot offer both for the same plan year.
Does the $680 carryover reduce my contribution limit for the following year?
No. A permitted carryover does not reduce the separate IRS salary-reduction contribution limit for the following plan year. The IRS sets the annual limit separately, so use the officially announced limit for that year rather than assuming it will remain the same as 2026.
What happens if I leave my job?
Unused health FSA amounts are generally forfeited when your coverage ends after termination of employment. In some cases, COBRA continuation coverage may be available and can allow continued access to the health FSA, depending on the plan and your eligibility. Check your COBRA notice and plan documents before assuming the balance is lost or remains available.
Official IRS Sources
Disclaimer: This article is for general educational purposes and reflects IRS guidance available as of August 23, 2026. Employer plan terms and deadlines vary, so check your Summary Plan Description (SPD) or plan administrator before making benefit or tax decisions.
