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Frequently Asked Questions Insurance

What happens to money in a Health Care Flexible Spending Account (HCFSA), Limited Expense Health Care Flexible Spending Account (LEX HCFSA) and the dependent care flexible spending account (DCFSA) dollars after the benefit period? 

If I contribute $2,500 for the year and only use $1,500, what happens to the remaining $1000?

The IRS created the "use or lose" rule, which states that all money left in your FSA is forfeited after the benefit period ends. If you don't use all of your FSA funds during the benefit period, you risk losing money.

However, the HCFSA and the LEX HCFSA have Carryover, which can allow you to carry over up to $500 in unused funds into the next benefit period. Any remaining unused funds over $500 will be forfeited. To be eligible for carryover you must both:

  • Actively employed by an FSAFEDS-participating agency and contributing to a HCFSA or LEX HCFSA through December 31, and
  • Reenroll in the FSAFEDS

A DCFSA does not have Carryover, but this account has a grace period of 2 1/2 months (January 1 - March 15) during which you can incur eligible dependent care expenses and use funds remaining in your DCFSA from the previous benefit period. You have until midnight Eastern Time on April 30 following the end of the benefit period to file claims for eligible expenses incurred during the previous benefit period or grace period.

When you contribute to an FSA, you agree to reduce your salary by a specified amount and your employing agency contributes that amount to an FSA for you. Since you never received that money, you cannot be taxed on it. If you were to receive the unused amount at the end of the benefit period, the IRS would consider this "deferred compensation". Section 125 of the IRS Code prohibits deferred compensation, thus the "use or lose" rule.

Your Agency cannot provide waivers for any employee regarding funds that might be forfeited. Neither OPM, nor your employing agency, has the authority to make any exception to the "use or lose" rule. To reduce your risk of losing money at the end of the benefit period, carefully estimate your expenses when choosing your annual election amount before enrolling in an FSA.

Please also keep in mind that reimbursement for expenses is generally based on when an expense is incurred, not when it is paid. You can use the "Savings Calculator" on www.FSAFEDS.com to help you calculate allotments based on your individual situation, as well as indicate your potential tax savings. 

If you are a Qualified Reservist, you may be eligible to request a Qualified Reservist Distribution (QRD) in order to avoid forfeiting money in your FSA account. For more information, see the HEART Act Quick Reference Guide on www.FSAFED.com.

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