FSA Grace Period Closes In: 3 Tips to Help Employees Avoid Forfeitures

Why It Matters

Unspent FSA balances represent a tangible financial loss for employees and a missed engagement opportunity for employers. Effective communication around deadlines directly reduces forfeiture rates and improves overall benefits satisfaction.

Key Takeaways

• Average $441 per employee forfeited annually.
• March 15 deadline marks end of 2025 FSA grace period.
• Employers can offer carryover, grace, or run‑out, not all.
• Eligible items include OTC meds, skincare, telehealth, devices.
• Clear communication reduces forfeiture and admin burden.

Pulse Analysis

Flexible Spending Accounts remain a cornerstone of employee benefits, offering tax‑free reimbursement for a wide range of health‑related expenses. Yet the average forfeiture of $441 per participant highlights a systemic knowledge gap. As the March 15 grace‑period cutoff approaches, employees risk losing unused 2025 funds unless they understand both the deadline and the breadth of eligible purchases—from over‑the‑counter medicines to telehealth services and wellness gadgets. HR leaders who proactively educate their workforce can capture this otherwise lost value.

Employers have three primary mechanisms to extend the spending window: a partial carryover of up to $660 into the next plan year, a grace period that adds roughly two and a half months, or a run‑out period allowing claim submissions for pre‑deadline expenses. Crucially, a plan may only feature one of these extensions, a nuance that often fuels confusion. Clear, repeated messaging about which option applies, the exact dates, and any required documentation—such as letters of medical necessity—prevents claim denials and aligns employee expectations with regulatory constraints.

Practical steps for HR include distributing searchable eligibility lists, highlighting everyday items like sunscreen or infant care products, and offering quick‑reference guides on documentation requirements. Leveraging digital benefits platforms to send automated reminders before the March 15 deadline can further reduce forfeiture rates. When employees feel confident using their FSA funds, they experience higher benefits satisfaction, and organizations benefit from reduced administrative overhead and stronger employee engagement.