You cannot get an FSA refund in cash. The IRS treats money you put into a flexible spending account as a permanent, pre-tax election, so any balance left when the plan year ends is forfeited under the “use-it-or-lose-it” rule. The only ways to preserve unused funds are the two provisions your employer may (or may not) offer: a grace period that extends your spending window, or a limited carryover into the next plan year.1Internal Revenue Service. IRS Notice 2013-71 – Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements
Why Cash Refunds Aren’t Allowed
FSA contributions skip federal income tax, state income tax, and FICA on the way in. That triple tax break is the entire reason the account exists. Letting you pull unused money out as cash would mean dodging tax on income you never spent on medical or dependent care, so the cafeteria plan rules explicitly bar unused FSA amounts from being “cashed out or converted to any other taxable or nontaxable benefit.”
In practical terms, you cannot move leftover FSA dollars into a personal savings account, roll them into an IRA, or receive them on a paycheck. Forfeited funds revert to your employer, who can use them to offset the administrative cost of the FSA or to reduce premiums for plan participants.
The Two Ways to Save Unused Funds
The IRS lets employers soften the use-it-or-lose-it rule by adopting one of two provisions. Your employer may offer one, or neither. They cannot offer both for the same FSA.2Internal Revenue Service. IRS News Release – Eligible Employees Can Use Tax-free Dollars for Medical Expenses Check your summary plan description or ask HR which one applies to you.
Grace Period
A grace period gives you up to two and a half extra months after the plan year ends to incur eligible expenses using your remaining balance.1Internal Revenue Service. IRS Notice 2013-71 – Modification of Use-or-Lose Rule for Health Flexible Spending Arrangements For a calendar-year plan, that means until March 15. Anything unspent after that date is forfeited. The grace period extends your spending window; it does not roll money into the new year.
Carryover
A carryover lets you roll a capped amount of unused health FSA funds into the next plan year. For 2026, the IRS limit is $680.3Internal Revenue Service. Rev. Proc. 2025-32 Anything above that is forfeited. Employers can set a lower cap in their plan documents. Carried-over money combines with your new-year election and is available to spend anytime during the new plan year.
Neither option puts cash in your hand. Both simply extend your ability to spend the money on eligible expenses before it disappears. And carryover applies to health FSAs; dependent care FSAs generally do not have a carryover feature.
What Happens If You Leave Your Job
When you separate from your employer, FSA coverage ends on your last day and any remaining balance is generally forfeited. Most plans give you a “run-out period” after separation to submit claims for expenses you incurred while still employed, but expenses incurred after your last day are not eligible.
There is one quirk worth knowing. Because your full health FSA election is available from day one of the plan year, you can come out ahead if you leave early after spending more than you contributed. If you elected $3,400 and used all of it by March while only $850 had been withheld from your paychecks, you keep the full $3,400 in reimbursements. Your employer cannot claw back the difference. The reverse is also true: leave late in the year with a large unspent balance and that money is lost.
COBRA for a Health FSA
Health FSAs are considered group health plans, so they fall under COBRA continuation coverage. If you leave with a positive balance, you can elect COBRA to keep spending that balance on qualified medical expenses through the end of the plan year.4U.S. Department of Labor. Continuation of Health Coverage (COBRA) You’ll pay the full cost of coverage, up to 102% of the plan cost, which means paying premiums to reach your own pre-tax money. It only pencils out when the remaining balance substantially exceeds the premiums you’d owe through year-end.
Dependent care FSAs are not group health plans, so COBRA does not apply. Unused dependent care funds at separation are forfeited unless the plan document provides otherwise.
Spending Down Before the Deadline
If you’re staring at a balance and a clock, the timing rule is what usually causes trouble. An expense counts against your FSA based on when the service was provided, not when you were billed or paid. A December 28 physical falls in the current plan year even if the bill lands in February. Orthodontia is a common exception; many plans treat the prepayment itself as the date the expense is incurred, since orthodontists typically require payment before treatment begins.
A health FSA has a useful feature here: your full annual election is available from the first day of the plan year. If you elected $3,400 and the year started January 1, you could submit a $3,400 claim on January 2. Dependent care FSAs work differently; reimbursement is limited to what has actually been withheld to date.
If your plan issues an FSA debit card, use it. The card eliminates the reimbursement paperwork for point-of-sale purchases at pharmacies and medical providers, which matters when you’re trying to spend down in the final weeks of a plan year. Eligible over-the-counter items like contact lens solution, first-aid supplies, and pain relievers are a straightforward way to use small remaining balances.
Changing Your Election Mid-Year
You generally cannot change your FSA contribution once the plan year starts. The main exception is a qualifying life event, which opens a window (typically 30 to 60 days) to increase, decrease, or cancel your election. Qualifying events include:
- Change in marital status, including marriage, divorce, or death of a spouse
- Change in dependents, such as birth, adoption, or a dependent aging out of eligibility
- Change in employment status for you, your spouse, or a dependent
- Change in dependent care arrangements, such as a new provider or a change in cost (dependent care FSA only)
The change has to be consistent with the event. You cannot use the birth of a child to slash your health FSA election because you’d rather have the cash. But you could raise your dependent care election to cover new childcare.
Avoiding the Problem Next Year
The best protection against forfeiture is an accurate election. Look back at last year’s medical and dependent care spending: copays, prescriptions, dental work, glasses or contacts, recurring expenses. Add planned elective procedures like LASIK or orthodontia. Then elect on the conservative side. Losing a few hundred dollars of tax savings stings less than forfeiting a few hundred dollars of contributions.
If the use-it-or-lose-it rule keeps burning you, a health savings account may fit better. HSA funds roll over indefinitely, there is no forfeiture, and the money stays yours if you change jobs or retire. The trade-off is that HSAs require enrollment in a high-deductible health plan, and you cannot contribute to both a general-purpose health FSA and an HSA in the same year. You can pair an HSA with a “limited-purpose” FSA that covers only dental and vision, which lets you keep some pre-tax flexibility without giving up the HSA. If your employer offers both structures, running the numbers side by side during open enrollment is time well spent.