Health flexible spending accounts allow workers to set aside pretax income for eligible medical expenses, though unused balances are typically forfeited at year-end. According to research from the Employee Benefit Research Institute examining over 3.3 million accounts, roughly 4 in 10 FSA account holders lost unused funds in 2024, with an average forfeiture of $404—down from $436 the previous year.
Despite these forfeitures, financial experts note that employees may still come out ahead compared to paying for health expenses with after-tax dollars. The tax savings from FSA contributions can offset forfeited amounts. For instance, a worker contributing the maximum $3,400 in 2026 with a combined federal, payroll, state and local tax rate of 35% would save approximately $1,190 in taxes. As long as forfeited funds fall below this figure, the worker maintains a net financial advantage.
The use-it-or-lose-it structure contributes to forfeitures because employees must estimate their healthcare costs before the plan year begins—a challenging task for healthy individuals without chronic conditions requiring regular prescriptions. However, roughly two-thirds of FSA plans offer alternatives to strict forfeiture policies. Some employers permit employees to carry over up to $680 annually into the next year, while others provide a grace period of up to 2.5 months after the deadline to incur additional qualifying expenses.
Access to health FSAs has expanded in recent years, with 72% of state and local government workers and 47% of private-sector workers having access in 2026, compared to 68% and 40% respectively in 2017. The IRS announced that the maximum FSA contribution for 2027 will increase to $3,500 from the current $3,400.
Many eligible expenses beyond routine medical services can help workers avoid forfeitures. Qualifying purchases include numerous over-the-counter items such as medications, sunscreen, menstrual care products, and certain health-monitoring devices, along with telehealth services, acupuncture, and addiction treatment. Employees can check their FSA account balance and remaining deadlines through online portals typically accessible via their FSA card.
Article Attribution | Read More at Article Source
Article summary produced by Claude AI