Every year, without fail, the same thing happens to millions of Americans in December. They log into their FSA portal, see a balance they forgot about, and feel their stomach drop. Some of them make it — they rush to CVS, load up on whatever qualifies, and hit zero just in time. Others don’t. The funds expire. The money is gone. And then open enrollment arrives again, and they do the whole thing over. This isn’t a story about carelessness or financial irresponsibility. It’s a story about a broken system.

According to a 2024 analysis of 3.2 million Flexible Spending Accounts by the Employee Benefit Research Institute, roughly half of all FSA accounts forfeited funds that year, with an average loss of $441 per person. Multiplied across 35 million FSA holders, that’s more than $4 billion that workers earned, pre-taxed, and simply handed back. Here’s why it keeps happening — and exactly what you can do to stop it.

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Key Takeaways

  • $4 billion is lost in FSA forfeitures every single year: Roughly 50% of all FSA accounts forfeit funds annually, with the average worker losing $441 — money they earned, set aside pre-tax, and simply never spent.
  • The system is structurally designed to create forfeitures: Eligibility confusion, reimbursement friction, and a December 31 hard deadline combine to make forfeiture nearly inevitable for unprepared account holders.
  • The right tools make forfeiture completely preventable: Daylii monitors your FSA balance in real time, surfaces eligible product recommendations before your deadline, and automates reimbursements — so you never leave your own money on the table.

How Does the “Use It or Lose It” Rule Actually Work?

The Flexible Spending Account was created by Congress as a way to let workers pay for healthcare with pre-tax dollars. That tax advantage comes with a condition: the funds you contribute must be spent on qualified medical expenses by your plan’s deadline, or they’re forfeited.

Most plans run on a calendar year basis, meaning the deadline is December 31. Approximately 70% of FSA holders are on a December 31 hard deadline, according to FSAStore data. Some employers offer a grace period, giving account holders an additional 2.5 months after the plan year ends to spend remaining funds. Others offer a rollover provision, allowing up to $640 to carry into the following year. Both of these relief mechanisms are optional — the employer must specifically elect them — and many plans offer neither.

When neither applies, every dollar sitting in your FSA at midnight on December 31 disappears. Not to the government. Not to a healthcare fund. To your employer, who can use the forfeited amounts to offset the cost of administering the benefit plan.

Why Does Forfeiture Keep Happening? The Real Reasons

It would be easy to blame forfeiture on distraction or procrastination. But the real causes run deeper than that — and they’re baked into the design of the FSA experience itself.

Eligibility Confusion Causes People to Stop Spending

Visa research found that 38% of people not enrolled in an FSA find them too complicated to understand — but the more revealing number is that 29% of people already enrolled agree. When account holders aren’t confident about what’s covered, they default to inaction. A 2025 survey by InComm Benefits confirmed that 64% of FSA and HSA cardholders avoid making purchases when they’re uncertain about eligibility. That avoidance is rational in the moment — nobody wants to get a charge rejected at the pharmacy — but it accumulates into a massive forfeiture problem over the course of a year.

Reimbursement Friction Leads to Abandoned Claims

The same InComm Benefits survey found that 50% of account holders don’t submit reimbursement requests at all because “the process is a hassle.” Saving a receipt, finding the submission portal, uploading documentation, and waiting up to three weeks for a decision — and a deposit — is enough friction to make people give up and absorb the cost out of pocket. Every abandoned reimbursement is money that could have been recovered but wasn’t.

Cards Get Declined on Eligible Items

54% of FSA and HSA cardholders have experienced a declined card at checkout on an item they believed was eligible. Every declined transaction damages trust. After being turned away once or twice, many people simply stop using their card proactively — which means the balance sits idle until forfeiture.

The December Scramble Is Built Into the System

When employees sign up for FSAs during October and November open enrollment, healthcare spending feels abstract. By December, when the deadline is imminent, the urgency hits — but by then it’s almost too late to spend thoughtfully. The compressed timeline forces reactive, often wasteful purchasing rather than intentional spending on things that actually improve health. As one benefits consultant put it: “The calendar page turns too quickly.”

What Happens to the Money You Forfeit?

This is the question most people never think to ask. When you forfeit FSA funds, they go back to your employer. Under IRS rules, employers may use forfeited amounts to offset the administrative costs of running the FSA program, to fund contributions to other employees’ accounts, or to expand employee benefits in other ways.

Your forfeited money does not go to the IRS. It does not go to a healthcare fund. It stays within your employer’s benefit ecosystem — which means other employees may indirectly benefit, but the worker who earned and contributed those dollars receives nothing in return.

Five Steps to Make Sure You Never Forfeit FSA Funds Again

Know Your Plan’s Exact Rules and Deadline

The single most important step is confirming whether your plan has a grace period, a rollover provision, or neither. Log into your benefits portal or contact HR today. This one conversation determines your entire year-end strategy. If you have a rollover, you can relax slightly. If you have a hard December 31 deadline, you need to plan accordingly — starting now, not in November.

Build Reminders Into Your Calendar in September and October

The December scramble happens because people wait for December to think about their FSA. Set calendar alerts in September and October — when you still have enough time to make intentional spending decisions. A mid-October reminder to check your balance gives you two full months to plan ahead, buy what you need, and eliminate the year-end panic entirely.

Expand Your View of What’s Eligible

Most FSA holders think the account is for copays and prescriptions. It’s also for sunscreen with SPF 15 or higher, over-the-counter allergy and cold medications, pain relievers, menstrual care products, blood pressure monitors, blood glucose meters, first aid kits, physical therapy, contact lens solution, and hundreds of other everyday health products. Stocking up on eligible items throughout the year — rather than only when a specific need arises — is one of the most effective ways to ensure you spend down your balance without any year-end scramble.

Shop Eligible Products Year-Round, Not Just in December

A December FSA shopping trip is a symptom of a broken year-round strategy. The better approach is to route all eligible purchases through your FSA card consistently — every prescription pickup, every OTC purchase, every pair of contact lenses. If your FSA balance is declining steadily all year, there’s no dramatic forfeiture risk waiting at the end.

Use a Tool That Does the Work for You

The most reliable defense against forfeiture is a platform that actively manages your account on your behalf. Daylii monitors your FSA balance in real time and sends proactive alerts when your funds are at risk. It surfaces personalized eligible product recommendations based on what you actually need and how much you have left to spend. And when you make a purchase, it handles the reimbursement automatically — from receipt scanning to direct deposit — so nothing gets lost in the process.

The Bigger Picture: This Is a Systemic Problem

$4 billion in annual forfeitures isn’t a rounding error. It’s a systemic failure that falls hardest on the workers the FSA benefit was designed to help. The complexity, friction, and “use it or lose it” deadline were never features — they’re bugs in an aging system that hasn’t kept pace with how people actually live and make decisions.

That’s the problem Daylii was built to solve. Not by adding another portal or another app to check, but by building the intelligence layer that the FSA experience was always missing — so that your money works for your health, not the other way around.

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Frequently Asked Questions

If I forfeit my FSA, can I get a refund?

No. Once FSA funds are forfeited at the end of the plan year, they cannot be reclaimed. The IRS does not allow employers to refund forfeited FSA balances to employees. This is why proactive planning throughout the year — not reactive spending in December — is the only reliable protection against forfeiture.

Can I intentionally over-contribute to my FSA and then lose the excess?

The IRS does not allow FSA contributions to be used as a tax planning mechanism by intentionally forfeiting funds. Contribution elections should reflect your genuine expected healthcare costs for the year. If you consistently over-contribute, consider adjusting your election during open enrollment based on your actual usage pattern.

Does my employer profit from my forfeited FSA money?

Under IRS rules, forfeited FSA funds go back to the employer. Employers may use them to offset the administrative cost of running the FSA plan or to enhance other employee benefits. They cannot be distributed back to the employees who forfeited them.

What’s the maximum I can roll over if my FSA has a rollover provision?

For 2025, the maximum FSA rollover amount is $640. Any remaining balance above that threshold at the end of the plan year is still forfeited. If your employer offers a rollover, it’s still important to keep your balance within a range you can realistically carry over rather than assuming the provision protects you fully.

How do I find out if my FSA plan has a grace period or rollover?

Your plan documents from open enrollment will specify whether your plan includes a grace period, a rollover provision, or neither. You can also contact your HR department or benefits administrator directly. This is one of the most important questions to ask during open enrollment — and it should inform how aggressively you plan your year-round FSA spending.