FSA carryover: What it is and what it means for you

A flexible spending account (FSA) carryover is one way you can provide flexibility to employees who participate in these accounts. We break down FSA carryovers below. Read our blog posts on grace periods and run-out periods for the rest of the series. 

Can FSA funds carry over to next year? 

Yes, employers do have the option of providing employees with an FSA carryover.  

What is an FSA carryover?

An FSA carryover lets your participants carry over funds from one plan year to the next. In general, an FSA carryover applies to only medical FSAs. 

How much of an FSA’s funds can carry over? 

The IRS permits employers to allow their employees to carry over up to $610 from their 2023 FSA (indexed annually, per IRS rules). 

Who determines the FSA carryover amount?

The employer determines the amount of the carryover (up to the IRS limit). 

Will carryover funds be spent first?

If your FSA is with WEX, your participants’ funds that were carried over from the previous plan year will be spent first before your current plan year’s funds are spent. 

Can you offer a carryover and a grace period?

In a FSA plan, you can either elect a carryover or grace period, but not both. A grace period works as an extension of the plan year, allowing participants full access to their remaining funds to incur new claims/expenses for up to a maximum of 2.5 months after the plan year has ended. 

59% of plans on the WEX benefits platform have a carryover. For more benchmarking data on your benefits, check out the WEX benefit trends page.

Can you offer a carryover and a run-out period?

Yes, an employer can choose to have a run-out period in addition to a carryover or a grace period. These are required, but almost every FSA plan includes one. A FSA run-out period is a period of time in the new plan year in which account holders can file claims for expenses incurred during the previous plan year. Chosen by the employer, the timeframe can vary. 

A participant didn’t elect an FSA for the next year. What happens to the carryover balance? 

A participant is not required to enroll in the FSA again in order to use carryover funds from the previous plan year. However, they must remain an active employee. Any participant who does not elect an FSA for the new plan year will be automatically enrolled with an election amount equal to the remaining balance from the previous plan year. Administrative fees will continue to apply for these participants.

Do the carryover funds count against a participant’s election in the next plan year? 

Nope! The available balance is transferred into the current plan year as an adjustment. This will not impact your current plan year election.

Perks for your participants

The ability to carry over FSA funds gives your participants peace of mind. FSAs are governed by the IRS’ use-or-lose rule, which requires that any funds in an FSA must be spent by the end of the plan year or else be forfeited to the plan. Offering the maximum allowed $610 carryover from a 2023 plan lets your participants carry up to $610 from their current plan year to the next plan year. 

By providing them with more flexibility, your participants might be more likely to participate in your FSA year after year, allowing you and them to save more money.

Learn more about additional options you can provide FSA participants by reading our blog posts on grace periods and run-out periods. 

This blog was originally published in August 2021 and most recently updated in August 2023.

The information in this blog post is for educational purposes only. It is not legal, financial, or tax advice. For legal, financial, or tax advice, you should consult your own legal counsel, tax and investment advisers.

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