Dependent Care FSA money does not roll over to the next year

Money you set aside in a Dependent Care FSA that you do not spend by the end of the plan year is forfeited — you lose it. This is called the "use-it-or-lose-it" rule, and it applies to nearly all Dependent Care FSAs. Unlike a Health Savings Account (HSA), which lets you carry unused funds forward indefinitely, a Dependent Care FSA has a hard important date each December 31st.

The only exception is a grace period, which some employers offer. If your plan includes a grace period, you get an extra 2.5 months (through March 15th of the following year) to spend the previous year's money. Not all employers offer this, so you need to check your plan documents or ask your benefits administrator whether yours does.

The reason for this rule is tax law. Dependent Care FSAs are funded with pre-tax dollars, which means the money you contribute reduces your taxable income for that year. To prevent people from accumulating large tax-free balances indefinitely, the IRS requires the use-it-or-lose-it rule.

Key Takeaways

  • Unused Dependent Care FSA funds are forfeited at the end of the plan year unless your employer offers a grace period.
  • A grace period, if available, extends the spending important date to March 15th of the following year for the prior year's balance.
  • You should check your plan documents or contact your benefits administrator to learn whether your employer offers a grace period.
  • The use-it-or-lose-it rule exists because Dependent Care FSA contributions are made with pre-tax dollars under IRS rules.
  • Planning your annual contribution carefully helps you avoid forfeiting money you have already set aside.

How to learn about your plan has a grace period

Your employer's benefits administrator or HR department can tell you whether your Dependent Care FSA includes a grace period. You can also check your Summary Plan Description (SPD), which is the official document that outlines all the rules of your FSA. Your employer is required to give you this document when you enroll, and it should be available on your benefits portal or by request.

If your plan does have a grace period, the SPD will state the exact end date — usually March 15th, but some plans set it earlier. Write this date down or set a reminder, because it is your real important date for spending the prior year's money.

What happens to forfeited money

When you do not spend your Dependent Care FSA balance by the important date, the money goes back to your employer. Employers can use forfeited FSA funds to pay plan administration costs (like the cost of running the FSA itself), or they can return the money to the general company budget. Either way, you do not get it back, and you cannot carry it forward to next year.

This is why it is important to estimate your dependent care costs carefully when you enroll. If you overestimate and end up with unused money, that money is straightforward gone.

How to avoid losing money at year-end

The best strategy is to estimate your dependent care costs conservatively. Look at what you actually spent in the previous year on daycare, after-school programs, summer camp, or other care for children under age 13 or disabled dependents. If your costs vary month to month, use an average or a slightly lower number to be safe.

You can only change your FSA contribution during open enrollment (usually in the fall) or if you have a may have access to life event — such as the birth of a child, a change in your spouse's employment, or a significant change in your child care costs. Outside of these windows, you are locked into your contribution for the year.

If you realize mid-year that you will not spend all your money, you cannot lower your contribution until the next open enrollment period. However, you can try to increase your dependent care spending before the important date — for example, by paying for care you would have used anyway, or by prepaying for care that will happen in the new year (if your provider allows it).

The difference between Dependent Care FSA and Health FSA rollover rules

A Health FSA (also called a Medical FSA) has the same use-it-or-lose-it rule as a Dependent Care FSA. However, an HSA (Health Savings Account) works differently — it lets you roll over unused money year after year with no limit. If you have both an HSA and a Dependent Care FSA, remember that they follow different rules.

Some employers also offer a Flexible Spending Account for commuter benefits (transit and parking). These accounts also follow the use-it-or-lose-it rule, though the grace period rules may differ slightly. Check your plan documents for each account type you have.

What to do if you have leftover money before the important date

If you have money left in your Dependent Care FSA account as the year-end approaches, you have a few options. First, review your dependent care bills to make sure you have been reimbursed for all may be able to access expenses. Sometimes people forget to submit receipts or invoices for care they already paid for.

Second, if you have upcoming dependent care expenses that you know are coming, you can pay for them early and submit the receipt for reimbursement before the important date. For example, if your child's summer camp starts in June but you can pay the deposit in December, you can do so and request reimbursement from your FSA before year-end.

Third, some dependent care providers allow you to prepay for services in advance. If your daycare or after-school program accepts prepayment, you can use your remaining FSA balance to prepay for January or February care, then submit the receipt before the important date.

Frequently Asked Questions

Can I roll over Dependent Care FSA money if I change jobs?

No. When you leave your job, your Dependent Care FSA ends, and any unused balance is forfeited. You cannot transfer it to a new employer's FSA or to any other account. If you start a new job with a Dependent Care FSA, you can enroll in that plan during your new employer's open enrollment or as part of your new-hire benefits, but you start with a fresh account and contribution.

What if my dependent care costs change mid-year?

You can request a change to your FSA contribution only if you have a may have access to life event — such as a child turning 13 (and aging out of the FSA), a change in your child care provider, or a significant change in costs. A may have access to event must be documented. If your costs straightforward go down without a may have access to event, you cannot lower your contribution until the next open enrollment.

Does the grace period explore to both Dependent Care FSA and Health FSA?

A grace period can explore to either account type, but it is up to each employer to decide. Some employers offer it for both, some for one, and some for neither. Check your plan documents or ask your benefits administrator which accounts in your plan have a grace period.

Can I use my Dependent Care FSA for summer camp?

Yes, if the camp is primarily for care and supervision while you work. Day camps and overnight camps for children under age 13 are usually may be able to access. However, camps focused on education, sports, or enrichment may not be may be able to access. Check with your FSA plan administrator or review your plan documents to confirm whether a specific camp qualifies.

What counts as dependent care for FSA purposes?

may be able to access expenses include daycare centers, in-home nannies, after-school programs, summer camps, and care for disabled dependents of any age. The care must be for a child under 13 or a disabled dependent, and it must allow you (and your spouse, if married) to work or look for work. Tuition for school or kindergarten does not count, even if the school provides before- or after-care.