This Common FSA Mistake Could Be Costing You Hundreds of Dollars a Year

Workers who leave money in their flexible spending accounts, or FSAs, are forfeiting hundreds of dollars per year.

The typical forfeiture was $404 in 2024, according to the latest data from the nonprofit Employee Benefits Research Institute, or EBRI. That represents a decline of $32 from $436 the previous year but marks the fifth consecutive year of average forfeitures exceeding $400.

“The decline in average forfeitures is encouraging,” Jake Spiegel, senior research associate, health and wealth at EBRI, said in a news release Wednesday. “Still, the findings point to opportunities for employers to help workers better … manage unused balances.”

FSAs are a popular workplace benefit designed to let workers use pre-tax dollars to offset out-of-pocket healthcare costs, such as copays, prescription drugs and other medical expenses. More than 20 million workers are estimated to have a medical FSA.

However, key drawbacks include that contributions are set by workers at the beginning of the year and are deducted from subsequent paychecks, requiring account holders to predict out-of-pocket medical expenses upfront. And, crucially, money left over in the account once the spending deadlines pass is forfeited back to the employer.

Employers can set their own FSA spending deadlines, but they usually come at the end of the calendar year. In some cases, employers allow a 2.5-month grace period, pushing the ultimate deadline to mid-March. Workers with FSAs should pay careful attention to spending deadlines, grace periods and reimbursement policies to ensure all eligible medical expenses are covered.

FSA forfeitures add up

EBRI’s research, which draws on its database of over 3 million FSA accounts, found that 4 in 10 FSA holders forfeited at least some of their contributions in 2024. Money previously calculated that workers have collectively forfeited between $4 billion and $5 billion of unspent FSA money per year in recent years.

Although workers can’t recover forfeited funds, the true financial loss is somewhat smaller than the dollar amount left behind, as the contribution to the account already lowered their taxable income. For example, a worker with a 12% federal income tax rate would receive a tax benefit of $120 for contributing $1,000 into an FSA.

Assuming the average forfeiture of $404, the net loss would be $284 in this case. For account holders in higher tax brackets, the tax benefit is higher, so it’s possible to forfeit some money and still come out ahead.

Regardless, forfeiting any money means the FSA holder is not getting the full benefits they’re entitled to, and the accounts have drawn scrutiny from health policy experts who question whether their tax advantages justify the costs.

Sherry Glied, a healthcare researcher and dean of New York University’s graduate school of public service, is an opponent of the accounts. She co-authored a 2024 study published by JAMA Health Forum that found the accounts lead to wasteful healthcare spending and represent a significant tax expenditure for the federal government due to the forgone revenue from untaxed income.

“FSA provisions certainly incentivize people to spend money on stuff they don’t really need,” Glied previously told Money. “They are total losers.”