U.S. workers weigh FSA tax savings against forfeiture risk

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FSA tax savings vs forfeiture

Highlights

About 40% of U.S. workers with health FSAs forfeited unused funds in 2024, averaging $404 each, down from $436 in 2023.
For 2026, the IRS allows a maximum health FSA contribution of $3,400, rising to $3,500 in 2027, with a $680 carryover cap and diverse grace period options.
FSA access grew to 72% for state and local government workers and 47% for private-sector workers by 2026, increasing benefit-plan relevance across sectors.

Research findings and plan rules

As reported by CNBC, citing the Employee Benefit Research Institute, about 4 in 10 workers with health FSAs forfeit unused money in 2024, and the average forfeiture among those who lost funds is $404, down from $436 in 2023. The study covers more than 3.3 million accounts representing $3.9 billion in contributions.

Jake Spiegel, a senior research associate at EBRI and author of the study, says workers can still come out ahead compared with not using an FSA if the amount forfeited is less than the tax savings generated by pretax contributions. Health FSAs let employees set aside pretax income for eligible medical expenses, but many plans still operate under use-it-or-lose-it rules.

Roughly a third of FSA users in the EBRI database face a strict forfeiture provision. The rest can either carry over part of their balance, up to $680 in 2026, or use a grace period of up to 2.5 months after the plan deadline, although employers cannot offer both options.

For 2026, the maximum health FSA contribution is $3,400, and the IRS says that limit rises to $3,500 in 2027. FSAs differ from health savings accounts because HSAs allow balances to roll over from year to year and can also be invested.

How employees can limit year-end losses

Access to health FSAs has expanded over time, with 72% of state and local government workers and 47% of private-sector workers having access in 2026, according to the Bureau of Labor Statistics. That compares with 68% and 40%, respectively, in 2017, increasing the relevance of benefit-election decisions for workers across sectors.

One reason employees forfeit money is that they must choose their contribution amount before the plan year starts, making health spending difficult to predict, especially for people without recurring medical costs. Spiegel says a prior forfeiture can help workers decide how much to contribute for 2027 if they have not yet made next year's benefit elections.

Rachel Rouleau, chief compliance officer for Health-E Commerce, says employees should check their employer's specific deadlines because not all plans follow a Dec. 31 cutoff. She also notes that eligible spending can include over-the-counter medicines, menstrual care products, sunscreen, first-aid supplies, certain health-monitoring devices and telehealth services.

Workers who are unsure about their remaining balance or deadline can usually review both through their plan's online portal, where they can also submit claims. Checking those details before the cutoff may reduce the risk of leaving tax-advantaged funds unused.

Our earlier article on early-career job-hopping reviewed research showing that changing jobs is often a key driver of wage growth and can help workers find stronger long-term employment matches. The piece highlighted evidence that avoiding job moves early on may limit earnings gains, even though short tenures are sometimes viewed skeptically in popular career advice.

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