It’s Time to Spend Your FSA Money Before Your Employer Gets What’s Left

Every year, millions of American workers unknowingly give money back to their employers. It does not happen through taxes, fees, or pay cuts, but through unused flexible spending account funds that quietly expire. Flexible spending accounts, commonly known as FSAs, were designed to help workers save on healthcare costs by allowing them to use pre-tax dollars. Yet despite this built-in advantage, roughly half of Americans with FSAs fail to spend all their money before the deadline. On average, more than $400 per person is forfeited annually, turning what should be a financial benefit into an avoidable loss.

This recurring issue is not driven by laziness or irresponsibility. Instead, it reflects confusion around FSA rules, misconceptions about eligible expenses, and the hectic pace of modern life. As deadlines approach, many workers simply do not realize how much money remains or assume they cannot spend it in time. By the moment they check, the opportunity has already passed.

Why FSA Money Expires in the First Place

FSAs operate under a “use-it-or-lose-it” framework established by IRS regulations. When employees elect a contribution amount during open enrollment, that money is set aside from their paycheck before taxes. The tradeoff for this tax advantage is strict spending deadlines. Unlike health savings accounts, FSA funds generally do not roll over indefinitely or remain with the employee after leaving a job.

Some employers offer limited flexibility through a grace period or a partial rollover option, but these policies vary widely. A grace period typically allows employees an extra two and a half months into the next year to spend remaining funds, while a rollover lets workers carry over a capped amount, usually a few hundred dollars. If an employer offers neither option, any unspent money at year-end is forfeited entirely.

The complexity of these rules often leads to inaction. Employees may assume they have more time than they do or misunderstand what their plan allows. Unfortunately, the IRS does not make exceptions for confusion, and employers are under no obligation to refund unused balances.

How Much Money Americans Are Really Losing

The scale of forfeited FSA money is larger than most people realize. Studies consistently show that about half of all FSA participants lose funds each year. When multiplied across millions of workers, the total amount surrendered runs into the billions. For individual households, the loss may feel manageable at first glance, but $400 represents a significant sum for many families, especially during periods of high inflation and rising healthcare costs.

What makes this loss particularly frustrating is that it is entirely preventable. The money was already earned, already set aside, and already tax-advantaged. Letting it expire means losing purchasing power that could have been used for routine medical needs or even long-overdue health investments.

Common Reasons People Fail to Spend Their FSA Funds

One of the most common reasons people lose FSA money is underestimating how many everyday items qualify as eligible expenses. Many workers believe FSAs are only for doctor visits or prescription medications, which limits how they think about spending options. In reality, eligible expenses include a wide range of healthcare-related products and services that people regularly pay for out of pocket.

Another major reason is poor timing. People often plan to use their FSA for future medical appointments that get delayed or canceled. Others expect a major expense, such as dental work or vision care, only to push it into the following year. When the calendar flips, those plans no longer matter if the funds have expired.

Finally, there is the issue of visibility. FSA balances are easy to forget because they are deducted automatically from paychecks. Without frequent reminders or proactive account monitoring, many people simply lose track of how much money remains until it is too late.

Smart Ways to Use FSA Money Before the Deadline

As deadlines approach, the key to avoiding forfeiture is awareness and creativity. FSA funds can often be used for preventive care, over-the-counter health products, and wellness-related expenses that people already need but may have postponed. Eye exams, prescription glasses, contact lenses, dental cleanings, and orthodontic treatments are common examples that can be scheduled quickly.

Beyond traditional care, many plans allow spending on items such as pain relievers, allergy medications, first aid supplies, menstrual care products, and medical devices. Mental health services, including therapy sessions, are also eligible under most plans. These options allow employees to convert unused balances into tangible health benefits rather than surrendering them back to the system.

The most effective strategy is to review the plan’s eligible expense list directly through the administrator. Rules can vary, and relying on assumptions often leads to missed opportunities.

The Psychological Trap of “Free” Money

Ironically, one reason people waste FSA funds is that the money does not feel real. Because it is deducted before taxes and never hits a checking account, it lacks the emotional weight of cash. Behavioral economists refer to this as mental accounting, where people treat money differently based on how it is categorized or accessed.

This psychological disconnect can lead to procrastination. When deadlines feel abstract and balances are out of sight, urgency fades. Employers benefit from this dynamic, even if unintentionally, because forfeited funds often help offset administrative costs of running the plan. While this is legal and disclosed, it underscores why employees must advocate for themselves.

Planning Smarter for Next Year

Avoiding FSA forfeiture is not just about last-minute spending. It also requires more accurate planning during open enrollment. Many workers overestimate future medical costs out of caution, only to find themselves scrambling to spend excess funds. Reviewing prior healthcare expenses and considering realistic needs can help set a more precise contribution amount.

It is also important to understand employer-specific rules before enrolling. Knowing whether a plan offers a grace period or rollover option can significantly influence how aggressively one contributes. In some cases, contributing slightly less may reduce stress and waste while still capturing meaningful tax savings.

Don’t Let the Deadline Decide for You

As inflation stretches household budgets and healthcare costs continue to rise, forfeiting FSA money is a luxury most families cannot afford. Every dollar left unspent is a dollar that could have supported better health, reduced out-of-pocket expenses, or provided peace of mind. Yet year after year, billions are surrendered simply because deadlines pass unnoticed.

Spending your FSA money before it expires is not about unnecessary purchases or forced spending. It is about reclaiming money you already earned and using it in ways that support your well-being. The clock is always ticking on FSA funds, but with awareness and action, the ending does not have to benefit your employer instead of you.

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