Each year, federal employees participating in the Federal Flexible Spending Account Program (FSAFEDS) are reminded of one critical rule: “use it or lose it.” At the end of the plan year, any unused FSA funds are generally forfeited unless eligible for carryover. Understanding the rules and deadlines associated with your FSA can help you make the most of your pre-tax dollars—and avoid unnecessary losses.
Know Your Balance
Before the plan year closes, it’s important to review your FSAFEDS account balance. Knowing how much remains in your account will help you plan your spending and ensure your funds are used effectively.
Rules for Federal Employees Continuing to Work
Health Care FSA and Limited Expense Health Care FSAs
The IRS allows a portion of unused funds to carry over into the next plan year.
- Carryover Limit: For 2025, participants may carry over up to $660 of unused funds.
- Automatic Carryover: The carryover happens automatically; however, you must re-enroll in an FSA for the following year to remain eligible. Re-enrollment can be for as little as $100.
- Forfeiture: Any remaining balance above the carryover limit will be forfeited after the plan year ends.
Dependent Care FSA
The rules for Dependent Care FSAs are different:
- No Carryover: DCFSA funds cannot be carried over to the next plan year.
- Grace Period: A 2.5-month grace period (typically ending March 15 of the following year) allows additional time to spend remaining funds.
- Forfeiture: After the grace period expires, any unspent balance is forfeited.
Rules for Employees Retiring or Separating
When a federal employee retires or separates from service, eligibility to incur new FSA expenses generally ends on the date of separation. How you can use your remaining funds depends on the type of account you hold.
Health Care FSA and Limited Expense Health Care FSAs
- Coverage Ends: Eligibility ends on your separation or retirement date.
- Claims Submission: You can only submit claims for eligible expenses incurred before your separation.
- Forfeiture: Any unused balance remaining after the claims run-out period is forfeited.
- No Carryover: Carryover provisions apply only to employees who remain enrolled; they do not extend to those who separate or retire.
Dependent Care FSA
- Claims Period: You may continue to submit claims for eligible expenses incurred before December 31 of the year you separate, or until your balance is exhausted—whichever comes first.
- No Grace Period: The grace period is only available to employees who remain employed through December 31.
- Forfeiture: Any remaining balance after December 31 of your separation year will be forfeited.
How to Avoid Losing Your FSA Funds
Whether you’re continuing federal service or preparing to retire, proactive planning can help you make full use of your FSA dollars.
For Employees Continuing Federal Service
- Review upcoming medical, dental, or vision needs for yourself, your spouse, and eligible dependents.
- Plan to use your remaining balance before the spending deadline.
- Purchase eligible over-the-counter (OTC) items, such as first aid supplies, sunscreen (SPF 15+), and menstrual products.
- Submit claims for any eligible past expenses, including travel-related costs for medical appointments (e.g., mileage and parking fees).
For Employees Retiring or Separating
- Use remaining funds on eligible expenses—such as prescription glasses, contact lenses, or other approved OTC items—before your last day of employment.
- File claims for expenses incurred before your separation date within the designated run-out period to ensure reimbursement.
What Happens to Forfeited Funds?
If funds are forfeited, they are returned to HealthEquity, the FSAFEDS plan administrator. In accordance with IRS regulations, the federal government—acting as the employer—uses these funds for the benefit of plan participants in several ways:
- Covering Administrative Costs: Forfeited funds may be used to offset the costs of operating the FSA program, such as processing claims and providing customer service.
- Offsetting Plan Losses: These funds can also help cover losses from employees who spend more than they have contributed before separating from service.
Leadership Takeaway
Please consider sharing this article with employees, especially those with spouses and children up to age 26.
