EMPLOYEE BENEFITS GUIDE · REVIEWED OCTOBER 22, 2026
When comparing FSA carryover vs. grace period rules, focus on two questions: when you can incur an eligible expense and when you must submit the claim.
A carryover and a grace period provide different ways to use certain unused health flexible spending arrangement funds. Neither should be assumed to apply automatically.
Start with your employer’s current health FSA notice. Confirm the plan year, the account type and the provision your employer adopted. This guide concerns health FSAs; dependent-care accounts have separate rules.
What Is a Health FSA Carryover?
A carryover allows a permitted amount of unused health FSA funds to move into the following plan year for eligible expenses. Your employer must offer that provision. A federal maximum does not require every plan to offer the maximum amount, or to offer carryover at all.
IRS Notice 2020-33 explains the inflation-indexed carryover framework. The permitted federal carryover amount is tied to 20% of the applicable annual salary-reduction limit. Use the figure for the relevant plan year and confirm the employer’s adopted amount.
Ask the administrator how the carryover will appear in the member portal and when the balance becomes available. Write down which plan year the displayed amount belongs to, especially if old-year claims are still being processed.
What Is a Health FSA Grace Period?
A grace period gives extra time after the plan year ends to incur eligible expenses using remaining funds. HealthCare.gov’s health FSA guide describes a possible grace period of up to two and a half months when the employer offers it.
Do not assume that every plan has a March deadline. First confirm when your plan year ends, then check the actual grace-period dates in the notice. Ask whether the expense must be incurred by that date and which supporting documents are required.
Can a Health FSA Offer Both?
IRS Notice 2013-71 establishes the carryover alternative to a grace period. For a health FSA, a plan generally cannot provide both a carryover and a grace period for the same plan year. The applicable employer provision determines which treatment is available. Check the written notice rather than combining the most favorable features from two different examples.
For instance, if a coworker at another company says unused money remains available for new-year expenses, ask which provision their plan uses. Their answer does not establish the rules for your account.
A Run-Out Period Is a Separate Deadline
A run-out period provides time to submit claims for expenses incurred during the applicable coverage period. It does not itself extend the period in which you can receive eligible care. IRS Notice 2020-33 distinguishes this claims-submission period from the rules governing when an expense is incurred.
Keep two calendar entries: the last date for incurring eligible expenses and the last date for submitting claims. Add any administrator documentation deadline. One reminder labeled “FSA deadline” can hide the distinction that matters most.
A Simple Example of the Difference
Imagine an employer whose health FSA plan year ends December 31 and whose notice allows claims to be submitted until March 31. Those are hypothetical dates, not an ESI plan description.
An eligible appointment received in December may have a claim-submission deadline in March under that run-out provision. An appointment received in February is a different question: whether prior-year funds can pay for it depends on the plan’s carryover or grace-period terms and the applicable coverage rules. The March submission date alone does not decide it.
Before relying on an example, ask the administrator to apply your actual notice to your service date and claim. Keep the response so you can follow the same instructions when submitting the expense.
What If You Are Moving to an HSA?
IRS Publication 969 explains that other health coverage can affect HSA contribution eligibility. A general-purpose health FSA, including applicable unused-funds arrangements, can create an eligibility issue. Limited-purpose arrangements may work differently.
Tell the benefits team about the existing FSA before setting new HSA payroll deductions. Ask whether a remaining balance, carryover or grace period affects the first month you can contribute. Review ESI’s HSA vs. FSA guide as background, then confirm your specific arrangement.
Set Next Year’s Election With the Current Rules
A carryover is different from choosing a new salary-reduction contribution. Review predictable eligible expenses and the employer’s annual election instructions. Do not elect the maximum simply because an account is available.
At this article’s October 22, 2026 review, official 2027 health FSA contribution and carryover figures could not be verified. Do not treat a projection as an announced IRS limit. Confirm the official release and the employer’s adopted provision before adding next-year amounts.
Your Unused-Funds Checklist
- Confirm health FSA account type and plan-year dates.
- Read the adopted carryover or grace-period provision.
- Separate expense-incurred and claim-submission deadlines.
- Review receipts, outstanding claims and any remaining balance.
- Check HSA eligibility before changing account elections.
Employers seeking help explaining benefits can explore ESI’s employee benefits services. Employees should use their benefits team and account administrator for the rules and deadlines governing their own account.
FOR EMPLOYERS AND HR TEAMS
Help Employees Understand Their Benefits
Clear benefits information helps employees review their choices and complete enrollment. Explore ESI’s employee benefits administration and communication support.
Explore ESI’s Employee Benefits Services →Employees should contact their benefits team for their own plan’s eligibility, coverage and deadlines.
Frequently Asked Questions
Does My FSA Money Automatically Roll Over?
No. Ask whether your employer adopted a health FSA carryover provision and what amount it allows. Review the plan notice before assuming the entire portal balance remains available.
Does Carryover Reduce My New Annual Election?
A permitted health FSA carryover is separate from the new plan year’s salary-reduction election. IRS Notice 2013-71 explains that distinction. Check the current annual limit and your employer’s election instructions.
Can I Get Unused Health FSA Funds Back as Cash?
Health FSA balances generally cannot be cashed out. IRS Notice 2020-33 explains the restriction on converting unused amounts to cash or another benefit. Submit eligible expenses on time and use the plan’s adopted unused-funds provision.
References
IRS Notice 2013-71; IRS Notice 2020-33; HealthCare.gov health FSA guide; IRS Publication 969.
Reviewed October 22, 2026. Check current plan notices, official annual figures and account rules when making benefit elections.
