Flexible Spending Accounts (FSAs) do expire and are considered to be a “use it or lose it” type of plan. They are savings accounts provided by employers to allow employees to defer portions of their salaries to be reimbursed for eligible expenses, such as medical or dependent care expenses. These deferrals are pretax, and as long as employees use the funds toward eligible expenses, the expenses are considered tax-free. As of 2015, the maximum salary reduction a person can put toward an FSA is $2,550.
Grace Period or Carryover
Any money deferred into an FSA during the calendar year is forfeited if it is not claimed by the expiration deadline. However, some plans may offer a grace period or carryover. A grace period is a certain amount of time in which the employee may submit a claim that may go past the end of the calendar year; the grace period tends to be around two to three months. However, once the grace period expires, all unused balances are forfeited.
Some FSA plans also offer a carryover, where plans may allow up to $500 of any unused balance to be used for the following year’s expenses. The FSA plan specifies this limit, and it may be less than the maximum of $500.
It is important to understand specifically how your FSA works, as every plan is different. Each FSA may have a set expiration date, grace period or carryover, so review your plan documents or call your plan provider to get further clarification.