Don’t Lose Your 2025 FSA Funds: Rules, Limits & Rollovers

Leaving money on the table is never a good business strategy, yet it happens frequently with Flexible Spending Accounts (FSAs). If you participate in an FSA through your employer, you are likely enjoying the immediate perk of lowering your taxable income. However, these accounts come with strings attached—specifically, strict timelines that dictate when you must use that money.

As we approach the end of the year, it is the perfect time to audit your balance. Whether you are managing a health care FSA or a dependent care account, understanding the rules, limits, and potential loopholes can prevent you from forfeiting your hard-earned cash. Here is a strategic breakdown of how to maximize your 2025 funds before the clock runs out.

Health Care FSAs: The Rules of Engagement

For the 2025 tax year, employees were permitted a maximum pretax contribution of $3,300. The primary benefit here is straightforward: you use pretax dollars to pay for medical expenses that insurance doesn't cover.

From a tax planning perspective, this is often smarter than relying on a medical expense deduction at tax time. To claim that deduction, you generally have to itemize, and your expenses must exceed 7.5% of your adjusted gross income. That is a high hurdle to clear. An FSA bypasses that complexity entirely, and as an added bonus, those contributions are exempt from Social Security and Medicare taxes.

The "Use-It-or-Lose-It" Reality

The catch with FSAs is the "use-it-or-lose-it" rule. Generally, you must incur qualifying medical expenses by December 31 (for calendar-year plans). If you don't, the money disappears. However, many plans offer safety nets. You need to check your specific plan document to see if you have access to either of these options:

1. The Grace Period: Some plans allow you an extra two and a half months to spend your funds. For a calendar-year plan, this extends your deadline to March 15 of the following year.
2. The Rollover: Alternatively, your plan might allow you to roll over a specific amount to the next year. For 2025 funds moving into 2026, you can roll over up to $660.

Note: Looking ahead, the rollover limit from 2026 to 2027 will increase to $680, and the annual contribution limit for health care FSAs will rise to $3,400 in 2026.

Strategic Ways to Spend Down Your Balance

If you check your balance and find a surplus, don't panic—but do act quickly. If you miss the year-end deadline (or the grace period), that money is gone. Consider scheduling elective procedures you have been putting off, or getting that dental checkup.

You can also use these funds for:

• New eyeglasses or contact lenses.
• Over-the-counter medications.
• Health-related supplies (like first-aid kits or sunscreen).

Dependent Care FSAs: What You Need to Know

If you are using a dependent care FSA to pay for childcare or care for a physically or mentally disabled spouse or dependent, the rules look a little different.

For 2025, the maximum annual contribution is $5,000 (or $2,500 for married couples filing separately). This money is specifically for the care of a child under age 13, or a dependent who lives with you for more than half the year and cannot care for themselves.

A Stricter Deadline

Like health FSAs, dependent care accounts are subject to the "use-it-or-lose-it" rule. However, there is a critical difference: Rollovers to the next year are not allowed.

While your employer might offer a grace period, you cannot carry a balance forward. This makes it even more critical to review your year-to-date expenditures now. Ensure you have submitted all eligible receipts and that you are on track to utilize the full $5,000.

Looking forward to 2026 strategy? Under the One Big Beautiful Bill Act, the contribution limit for dependent care FSAs is set to increase significantly to $7,500.

Secure Your Financial Health Before Year-End

Managing your finances isn't just about making money; it's about keeping what you have earned. As 2025 wraps up, take a moment to review your FSA balances. Check with your HR department to confirm if your specific plan offers a grace period or a rollover option so you aren't caught off guard.

If you have questions about how these accounts impact your overall tax picture, or if you want to discuss year-end tax planning strategies, we are here to help. At SD Mayer & Associates, we believe in empowering you to make the smartest financial decisions possible. Let’s ensure you start the new year with a clean slate and no wasted funds.