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Some workers with health flexible spending accounts may be on the verge of giving their employers an unintentional gift this holiday season.

Each year, the share of employees who miss the typical Dec. 31 deadline to spend their FSA money and end up forfeiting it to their companies is between 40% and 50%, according to ongoing research from the Employee Benefit Research Institute, which began tracking FSA data in 2019. Although some companies give account holders an extension, most — about two-thirds — employ a use-it-or-lose-it rule.

“People tell us one of the main reasons they forfeit FSA funds is because they aren’t aware that they have a deadline in the first place, or they don’t know how much they have left in their account,” said Rachel Rouleau, chief compliance officer for Health E-Commerce, parent company of FSA Store.

Don’t confuse your FSA with an HSA

The total U.S. health-care expenditure was $4.9 trillion in 2023, according to the most recent data available from the Centers for Medicare & Medicaid Services. Out-of-pocket spending that year grew 7.2% to $505.7 billion.

As health-care costs have risen over the years — at a rate outpacing overall inflation — FSAs have grown in popularity as a way for workers to set aside pretax money to cover health expenses. Nearly three-quarters — 72% — of state and local government workers and 47% of private-sector workers had access to a health FSA in 2024, according to the Bureau of Labor Statistics. That compares with 60% and 40% in 2015, respectively.

The contribution limit for health FSAs this year is $3,300 and in 2026 will be $3,400.

FSAs are different from health savings accounts, or HSAs, which some people use in conjunction with high-deductible health plans. While both let you set aside pretax money for health care expenses, HSAs do not come with a use-it-or-lose-it provision — you can leave the money in the account as long as you want.

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“People confuse FSAs with HSAs by thinking they are the same thing,” said certified financial planner Bill Shafransky, senior wealth advisor for Moneco Advisors in New Canaan, Connecticut.

Of the FSA owners who forfeited money in 2023, the average amount was $436, according to the Employee Benefit Research Institute.

Use remaining FSA funds ‘to your advantage’

If you have an FSA, first check whether your company’s plan year ends on Dec. 31 — most do, but there are some employers whose plan year ends in a different month.

Also, see if your employer offers either a grace period of up to 2.5 extra months to spend your balance on eligible new expenses or allows you to carry over a set amount — up to $660 this year. They cannot provide both options.

Additionally, many employers give you extra time — typically three months after the deadline — to submit receipts for qualifying expenses that occurred during the previous plan year.

For workers without either a grace period or carryover, not all hope is lost, Shafransky said. “Coming into the year-end, use eligible expenses to your advantage,” he said.

For example, the average household spends $1,600 a year on FSA-eligible products, according to FSA Store estimates, Rouleau said.

The list of covered items is lengthy and includes things like cold and allergy medications, acne patches and cleansers, over-the-counter pain medications and menstrual care products, she said. There are also health technology products, including light therapy devices for pain or acne treatment and migraine relief masks.

That’s in addition to doctor and dentist appointments, prescription drugs and other health-care services such as acupuncture and addiction treatment.

If you don’t know if you have money remaining in your FSA or what your company’s rules are, there are ways to find out.

Most plans offer an online portal where you can review your balance, submit claims and check deadlines, Rouleau said. The FSA administrator’s information is typically listed on the back of your FSA card, she said.

“If you’re unsure who your FSA administrator is, your HR department can point you in the right direction,” she said.