FSA Grace Period Closes In: 3 Tips to Help Employees Avoid Forfeitures

When benefit plan rules and timelines aren’t clearly explained, employees often don’t fully understand their Flexible Spending Account (FSA) deadlines.

That’s why it’s important to educate them now about deadline extensions — such as the upcoming March 15th FSA grace period deadline — and rollover options. It can go a long way toward keeping their funds from going unused.

For many FSA users, the grace period deadline may be the last chance to use 2025 funds before they disappear, and your employees may not realize how much is at stake until it’s too late.

What Could Be Left on the Table in FSA Grace Period

If you consider the fact that an average of $441 per person is forfeited each year because of missed deadlines or confusion about plan rules, it’s clear why HR teams need to help employees make the most of these accounts and avoid forfeitures by educating them about deadlines and any extensions their organizations offer, as well as how funds can be used.

Here’s how HR can help now.

1. Ensure Employees Know What’s Eligible

Employees benefit most from FSAs and HSAs when they understand what they can purchase and how to access their remaining balance. Many are surprised to learn how broad FSA eligibility really is. Everyday needs such as over-the-counter medications, specialty skincare, infant and toddler care products, sunscreen, diagnostic tools, and telehealth options, including virtual mental health counseling, are all eligible.

Many of these are everyday products and services that employees are already purchasing, so why not help them save by using their tax-free funds? As HR pros, you can also direct employees to a searchable eligibility list to eliminate uncertainty and give them a straightforward way to use their funds responsibly.

2. Be Clear About Deadlines and Extensions

Account holders often assume every FSA follows the same rules, but deadlines and extensions vary by employer. While December 31 is the most common spending deadline, your organization may offer one of the following options.

• FSA Carryover: An increasingly popular FSA option is the partial carryover of unused funds into 2026. Be sure to inform employees about how much of a carryover you offer, if this applies to your organization. The maximum allowed carryover from 2025 to 2026 is $660.
• FSA Grace Period: You might also offer an FSA grace period that gives employees an additional two-and-a-half months to incur new expenses against their remaining 2025 funds. For FSAs with a December 31 deadline, the grace period extension deadline is March 15.
• FSA Run-out Period: If your organization offers a run-out period, employees have an additional 90 days to submit claims for expenses incurred before the end of your plan year (for most people, the plan year ends on December 31).

Be sure to communicate clearly and often about what your company’s deadline is and which, if any, of these extensions you offer. Remember, employers can offer either a partial rollover of funds or a grace period or runout period; you cannot offer both. This is often a point of confusion for account holders.

3. Explain Eligibility

Once employees realize December 31 is not always the final stop for FSA funds, the next question is usually, “How can I spend these funds?”

FSA eligibility is broader than many people realize, but employees need to understand that some expenses require extra documentation.

Around deadline time, it’s common to see ads for FSA-eligible products and services that do not clearly mention that a Letter of Medical Necessity may be required before an expense is approved. Helping employees understand when documentation is needed and pointing them to that comprehensive FSA eligibility list can alleviate the frustration of denied claims.

Also, remind employees that FSA funds can be used for themselves and their qualified dependents, including children through age 26. That means employees can use their FSA to gift themselves or their dependents with everyday items like acne patches and SPF lip balms to high-tech purchases like a wearable health tracker, a heated massage gun, or a red/blue light therapy device.

For HR teams, providing extra guidance can improve employee engagement and benefits satisfaction in the long run, while timely, straightforward information and access to FSA tools can help employees feel more confident about their choices and reduce FSA forfeitures. And ultimately, educated employees can alleviate administrative burden for your team.