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Some workers with flexible spending accounts for health care may be looking to give their employers an unintended gift this holiday season.
An ongoing study by the Employee Benefit Research Institute, which began tracking FSA data in 2019, shows that between 40% and 50% of employees fail to meet the typical Dec. 31 deadline to spend their FSA money and end up forfeiting it to their companies each year. Some companies give account holders extensions, but most (about two-thirds) use a “spend it or lose it” rule.
“We’re told that one of the main reasons people confiscate FSA funds is because they don’t realize there’s a deadline to begin with, or they don’t know how much is left in their account,” said Rachel Rouleau, chief compliance officer at Health E-Commerce, FSA Store’s parent company.
Don’t confuse FSA and HSA
Total U.S. health care spending in 2023 was $4.9 trillion, according to the latest data available from the Centers for Medicare and Medicaid Services. In the same year, out-of-pocket spending rose 7.2% to $505.7 billion.
With health care costs rising faster than overall inflation for years, FSAs have become increasingly popular as a way for workers to put aside pre-tax funds to cover medical costs. According to the Bureau of Labor Statistics, nearly three-quarters (72%) of state and local government employees and 47% of private sector workers had access to health FSAs in 2024. This compares to 60% and 40% respectively in 2015.
The contribution limit to the Health Finance Agency this year is $3,300, rising to $3,400 in 2026.
FSAs are different from health savings accounts (HSAs) that some people use in conjunction with high-deductible health plans. Both allow you to set aside pre-tax money for medical expenses, but an HSA doesn’t have a “spend it or lose it” provision and you can leave the money in the account for as long as you like.
“People confuse FSAs and HSAs, thinking they’re the same thing,” says Bill Schafranski, a certified financial planner and senior wealth advisor at Moneco Advisors in New Canaan, Conn.
Among FSA owners who had forfeitures in 2023, the average amount was $436, according to the Employee Benefits Institute.
Put your remaining FSA funds to good use
If you have an FSA, first check to see if your company’s plan year ends on December 31st. Most companies do, but some employers may have their plan year end in a different month.
Also check to see if your employer offers up to an additional 2.5 months of grace period to apply your balance to eligible new expenses, or if it allows you to carry over a set amount (up to $660 this year). We cannot offer both options.
Additionally, many employers will give you additional time (usually three months after the deadline) to submit receipts for qualifying expenses incurred during the previous plan year.
Shafransky said all hope is not lost for workers who have no grace period or carryover period. “Make sure you put your eligible spending to good use as you approach the end of the year,” he said.
For example, FSA Store estimates that the average household spends $1,600 a year on FSA-eligible products, Rouleau said.
The list of affected items is long and includes cold and allergy medicines, acne patches and facial cleansers, over-the-counter pain relievers and menstrual care products. There are also health technology products such as phototherapy devices for pain and acne treatment and migraine relief masks.
This includes doctor and dentist visits, prescription drugs, and other medical services such as acupuncture and addiction treatment.
If you’re not sure if you have money left in your FSA or what your company’s rules are, there are ways to find out.
Rouleau said most plans offer an online portal where you can check your balance, submit a claim and check due dates. FSA administrator information is typically located on the back of the FSA card.
“If you don’t know who your FSA administrator is, your human resources department can point you in the right direction,” she said.
