Carryover vs grace period
| Carryover | Grace period | |
|---|---|---|
| What it is | Unused money moves into the next plan year | Extra time after year end to spend the old balance |
| Size | Up to $680 for 2026 (the IRS sets a ceiling) | Up to 2½ months |
| Can the plan offer both? | No, one or the other or neither | No, one or the other or neither |
| Counts against next year’s limit? | No | No |
| Dependent care FSA | Not allowed | Allowed if the plan adopts it |
Worked example (2026 rules)
| Step | Amount |
|---|---|
| Elected for 2026 | $3,400 |
| Spent on eligible expenses | $2,500 |
| Left unused | $900 |
| Carried over (up to $680, if the plan allows) | $680 |
| Forfeited | $220 |
The $680 is 20% of the $3,400 limit: $3,400 × 20% = $680. Because the carryover maximum is figured from the limit, the 2027 carryover can only be known once the 2027 limit is published. Check your plan document for the carryover or grace-period rule your employer actually adopted.
Carryover and HSA eligibility
A general-purpose health FSA balance that carries into a new year can make you ineligible to contribute to an HSA for that year. Some plans offer a limited-purpose carryover, or let you decline it. Ask your plan administrator before you enroll in an HSA-eligible plan. See HSA vs FSA.
Source: IRS Rev. Proc. 2025-32, section 4.15. Checked October 18, 2026.
Related: health FSA limit · 2027 limits hub · HSA vs FSA.
This is general information, not tax or insurance advice. Confirm details with your plan documents, the IRS and a qualified professional.
General education, not insurance, tax or legal advice. Figures from IRS and HHS publications; confirm with your plan documents.