The "Use-It-or-Lose-It" Deadline: The Ultimate Guide to Spending Your FSA Balance

As the calendar turns to late December, the holiday rush often overshadows a critical financial deadline. While you are buying gifts for others, you might be letting your own money vanish into thin air. We are talking about your Flexible Spending Account (FSA).

Unlike Health Savings Accounts (HSAs), which are your property forever and roll over year-to-year, FSAs are governed by a strict IRS rule known as "Use-It-or-Lose-It." For millions of employees, any pre-tax money left in this account at the end of the plan year (typically December 31st) is forfeited to the employer. It doesn't go to the government; it goes back to the company. In 2024 alone, it is estimated that Americans forfeited over $3 billion in unspent FSA funds. That is $3 billion of salary that people earned but never received.

Don't be a statistic. This money is your pre-tax salary that you voluntarily set aside. Losing it is equivalent to taking a pay cut. This comprehensive guide acts as your emergency playbook for the final days of the year. We will clarify the confusing rollover rules for 2025/2026, explain the powerful "Letter of Medical Necessity" tool for buying big-ticket items, and provide a curated, expert-approved list of eligible items you can buy today to zero out your balance.

Part 1: The Rules of Engagement (Know Your Plan)

Before you start panic-shopping, you need to understand the specific rules of your employer's plan. While the IRS sets the boundaries, employers have discretion on how to handle year-end balances. The "Use-It-or-Lose-It" rule is the default, but there are two potential safety nets. Crucially, employers can usually offer ONLY ONE of these options, never both.

Option A: The Carryover (The Best Case) For the 2025 plan year heading into 2026, the IRS allows a maximum carryover of $640.

• How it works: If you have $640 or less remaining, the entire amount rolls over to next year automatically.
• The Trap: If you have $1,000 remaining, only $640 rolls over. You will forfeit the other $360 if you don't spend it by Dec 31.

Option B: The Grace Period (The Extension) Some employers offer a "Grace Period" of 2.5 months, extending your spending deadline to March 15th.

• How it works: You can incur new expenses in the first 2.5 months of the new year and apply them to the old year's balance.
• The Trap: If you don't spend it by March 15th, the entire remaining balance is lost. There is no partial carryover.

Option C: The Hard Deadline (The Worst Case) Many employers offer neither. At 11:59 PM on December 31st, your balance resets to $0.

Action Step: Log in to your benefits portal right now. If you don't see explicit mention of a carryover or grace period, assume you are in Option C and must spend every penny immediately.

Part 2: The "Incurred" vs. "Paid" Distinction

This is the most common reason for denied end-of-year claims. The IRS cares about when the service was incurred (performed), not when you paid the bill.

• Correct: You visit the dentist on December 30th. You pay the bill on January 15th. This counts toward the current year because the service happened in December.
• Incorrect: You prepay your therapist on December 30th for appointments in January. This is generally NOT allowed. You cannot use current-year funds for future-year services.
• The Exception: Buying physical goods (glasses, first aid kits). The "service date" is the purchase date.

Part 3: The "Panic Buy" Strategy (Eligible Items)

If you have a balance to burn, you don't have to schedule a last-minute surgery. You can stock up on everyday health essentials. The CARES Act permanently expanded the list of eligible items to include over-the-counter (OTC) medications without a prescription.

1. High-Tech Health Monitoring This is the best way to use up a large balance ($100-$300) quickly.

• Smart Thermometers: Devices like Kinsa track fevers for the whole family via an app.
• Blood Pressure Monitors: Essential for anyone over 40. Omron and Withings make high-end connected versions.
• Pulse Oximeters: Measures oxygen saturation.
• TENS Units: Electronic muscle stimulators for chronic back or neck pain relief.
• Biofeedback Devices: Devices like the Muse headband (for stress) sometimes qualify, though check your plan.

2. The "Medicine Cabinet" Restock Go through your bathroom and replace everything that is expired. You can buy unlimited quantities of:

• Pain Relief: Tylenol, Advil, Motrin, Aleve.
• Allergy: Zyrtec, Claritin, Flonase, Benadryl.
• Digestive: Tums, Prilosec, Pepto-Bismol.
• Skin Care: Acne creams (must have active ingredients like salicylic acid), Eczema creams, Calamine lotion.
• Sleep Aids: Melatonin (sometimes requires LMN), Unisom.

3. Vision and Eye Care (The Hidden Goldmine)

• Prescription Glasses/Sunglasses: If you have a current prescription, order a backup pair online. Warby Parker and others accept FSA cards.
• Contact Lenses: You can usually buy a 6-month or 12-month supply in advance.
• Contact Solution: It never expires quickly. Buy in bulk.
• Reading Glasses: Even standard, non-prescription "cheaters" from the drugstore are eligible.

4. Sun Protection (Summer Prep) Sunscreen is eligible! The only requirement is that it must be SPF 15 or higher.

• Buy high-end facial sunscreens (Supergoop, EltaMD).
• Buy bulk spray sunscreen for the kids for next summer.
• Lip balm with SPF 15+.

5. First Aid and Family Planning

• First Aid Kits: Buy a comprehensive kit for your car, your kitchen, and your hiking bag.
• High-End Bandages: Waterproof, blister-protection, and liquid bandages.
• Pregnancy Tests and Ovulation Monitors.
• Condoms.
• Breast Pumps and Supplies: Bags, parts, and accessories.

Part 4: The Loophole - Letter of Medical Necessity (LMN)

What about items that fall in the gray area? Massage guns, orthopedic shoes, ergonomic chairs, or gym memberships? These are "dual-purpose" items (can be for health or general use). To buy them with FSA funds, you need a Letter of Medical Necessity (LMN) from a doctor.

• The Process: Ask your doctor to write a note stating that you require a specific item (e.g., a massage gun) to treat a specific medical condition (e.g., chronic lower back fasciitis).
• The Result: With an LMN, you can submit the receipt and get reimbursed. This is how people buy expensive items like Theraguns or specialized mattresses with pre-tax dollars.

Part 5: How to Shop Efficiently (Avoiding Paperwork)

To avoid the headache of submitting receipts and waiting for reimbursement, shop at FSA-certified merchants.

• FSAstore.com / HSAstore.com: These sites only sell eligible items. You can use your FSA debit card directly, and the transaction will auto-substantiate. No receipts needed.
• Amazon FSA Store: Amazon has a dedicated filter for "FSA Eligible."
• Pharmacies (CVS/Walgreens): Their checkout systems are coded to recognize eligible items (IIAS). Your card will pay for the eligible items and ask for another payment method for the rest.

Conclusion

Your FSA is a "use-it-or-lose-it" benefit, but it shouldn't be a source of stress. Treat this week as a tax-free shopping spree for your future health. By stocking up on essentials like sunscreen, pain relievers, and tech devices, you are essentially converting your expiring pre-tax dollars into tangible goods that will save you money throughout 2026. Log in, check your balance, and start filling your cart before the ball drops.