How Much To Put In An FSA Without Losing Any Of It

My first year with a flexible spending account I elected $2,000, because it was a round number and the enrolment screen would not let me leave the box empty. By the second week of December I had $400 left and a deadline, so I bought a first aid kit, a year of contact lens solution and a backup pair of glasses I have worn maybe twice.

I still forfeited some of it.

A hundred and forty dollars.

The account did what it said it would. I had typed a guess into it in November and spent December trying to make the guess come true.

What an FSA is, quickly

A health flexible spending account, an FSA, is an employer account you fund out of your paycheck to pay medical costs. You pick an annual amount during open enrolment, it comes out of each paycheck in equal slices, and you spend it on eligible costs during the plan year.

For 2027 you can put in up to $3,500, up from $3,400 for 2026.

The money skips federal income tax and the 7.65 per cent employee payroll tax for Social Security and Medicare. In a 22 per cent bracket, meaning the next dollar you earn is taxed at 22 per cent, that adds up to 29.65 per cent saved on every dollar you spend through the account.

On $2,000, that is $440 of income tax plus $153 of payroll tax. Call it $593 you keep, before any state tax.

The catch is in the nickname. Whatever you do not spend by the deadline goes back to the plan, and the fear of that is why so many people elect too little or skip the account entirely, leaving the $593 behind to avoid a risk they could have sized.

Your plan decides how hard the deadline is

Federal rules let an employer soften use it or lose it in one of two ways. A plan can offer one or neither, never both.

• Carryover. Unused money rolls into the next plan year, up to a cap: $680 from a 2026 plan year and $700 from a 2027 plan year. Anything above the cap is forfeited.
• Grace period. You get up to two and a half extra months after the plan year ends to spend what is left, which on a calendar year plan with the full grace period runs to March 15.
• Neither. The deadline is the last day of the plan year, usually December 31, and that is the end of it.

Which one you have is in your plan documents, usually the summary plan description in the benefits portal. Look it up before you pick a number, because it changes the right number.

While you are there, find the claims deadline too, the date by which receipts have to be submitted. The plan sets it separately and it is easy to miss.

Elect what you already spend

The method is boring. Add up last year's predictable medical spending, the costs that come back every year without anything going wrong, and elect that. Not a guess at what a bad year might cost.

Your pharmacy history and your insurer's claims page cover most of it. Leave out the urgent care visit and the sprained ankle, because you cannot schedule those.

Elect $1,560. At the same 29.65 per cent, that saves $462.54 on money you were going to spend regardless: $343.20 of income tax plus $119.34 of payroll tax.

Now the version I did my first year. Say you round up to $3,000 because it feels responsible, then spend the $1,560 and not a dollar more.

The extra $1,440 saved you $426.96 in tax. On a plan with no carryover and no grace period, all $1,440 is forfeited, so the round number cost you $1,013.04.

On a plan with carryover, $700 of the 2027 leftover rolls into 2028 and $740 is forfeited. You are still $313.04 behind, because $740 minus $426.96 is $313.04.

The odds are lopsided. Each dollar you spend through the account saves you about 30 cents, and each dollar you forfeit costs you the whole dollar, so one forfeited dollar wipes out the tax saving on more than three dollars you did spend.

Add a cushion only if your plan has carryover, keep it under the cap, and elect less the following year by whatever rolled in.

What it pays for

More than people assume. Copays, deductibles, prescriptions, glasses and contacts, and dental work all qualify. Since 2020, over-the-counter medicines and menstrual products qualify too, without a prescription.

That last change is the one to lean on if you end up with a small December balance. Pain relief, allergy tablets, cold medicine and the pads or tampons you would have bought anyway, rather than a first aid kit you will find at the back of a cupboard in 2031.

The rule that makes the account better than it looks

Nobody mentions this at enrolment. Under what is called the uniform coverage rule, your full annual election is available from the first day of the plan year, even though you fund it one paycheck at a time.

Elect $1,560 and get paid every two weeks, and $60 comes out of each of 26 paychecks. If the crown happens in February, after three paychecks, you have put in $180. The plan pays the $650 anyway.

So the account works like an interest-free advance on the year's predictable bills, which matters most when the big cost lands early. That is what the rule is for.

It has a consequence at both ends of a job. Spend the full election and leave mid-year, and you generally do not pay back the difference. Leave in October having spent little, and the unspent contributions generally stay with the plan. Plan rules and any continuation coverage can change either outcome, so read yours rather than leaning on a general rule.

The election is also generally locked once enrolment closes, unless you have a qualifying life event such as a birth or a marriage. You will live with the number for twelve months.

If you also have an HSA

A general-purpose health FSA makes you ineligible to contribute to a health savings account, an HSA. If you are on an HSA-qualified plan and putting money into the HSA, a regular FSA election quietly breaks that.

Many employers offer a limited-purpose FSA instead, which covers dental and vision only and works alongside an HSA. In the table above, that is the contacts, the eye exam, the cleanings and the crown: $360 plus $50 plus $80 plus $650, or $1,140 of the $1,560.

The dependent care FSA, for childcare, is a separate account with its own limit of $7,500 per household starting in 2026.

Before enrolment closes

Open last year's pharmacy history and your insurer's claims page and write down every cost that will come back in 2027. Add anything your dentist or eye doctor has already told you is coming.

Then find the line in your plan documents that says carryover, grace period or neither. Elect the total you just wrote down. If your plan has carryover, a small cushion under the cap is fine, and if it has neither, type in the total exactly and close the tab.