What happens to dependent care FSA funds not used?
Asked by: Ms. Janet Jacobs V | Last update: January 12, 2026Score: 5/5 (66 votes)
What happens to dependent care FSA if you don't use it?
The IRS created the ""use or lose"" rule, which states that all money left in your FSA is forfeited after the benefit period ends . If you don't use all of your FSA funds during the benefit period, you risk losing money.
Where does unused dependent care money go?
Does Dependent Care FSA Unused Money Rollover? Dependent care FSA rules are subject to a "use it or lose it" requirement, which means participants must forfeit any unused funds remaining in their account at the end of the plan year and grace period (if a grace period is provided).
What to do with leftover dependent care FSA money?
If you left the money in the FSA unclaimed, you still need to run the dependent care interview. One of the questions is ``did you forfeit any funds'' and you would report that you forfeit the $5000. It is not added back as taxable income because it was forfeit and lost to you.
What happens to the FSA money I don't use?
If I contribute $2,500 for the year and only use $1,500, what happens to the remaining $1000? The IRS created the "use or lose" rule, which states that all money left in your FSA is forfeited after the benefit period ends.
What Happens to Unused Dependent Care FSA Funds? - InsuranceGuide360.com
Can dependent care FSA be refunded?
However, this relief does not modify the rule that an employee's contributions to a dependent care FSA cannot be returned other than as reimbursements for dependent care expenses. This also applies to contributions the employee made before a mid-year election change.
What happens to dependent care FSA when you quit?
You are able to submit qualified expenses up to your available balance for reimbursement through the plan year end in which you terminated employment. If you do not have any qualifying expenses, any remaining balance in the plan will be forfeited.
What happens to excess dependent care FSA?
The Form 2441 will compute the amount of any excess dependent care FSA contributions, which must be reported as taxable income on the Form 1040 by writing “DCB” (dependent care benefits) next to Line 1. There is no penalty associated with this process. The excess amounts are merely converted to taxable income.
How do I get my unused FSA back?
Check with your plan administrator to see if your plan has a grace period or carryover. If so, you can still incur new expenses in the new plan year and be reimbursed with the old leftover funds. If not, then it is too late as funds don't roll over. Your employer also has the option of offering a runout period.
Can I pay a babysitter with dependent care FSA?
Yes, your dependent care FSA can reimburse you for expenses paid to a babysitter under the age of 19 as long as the babysitter is not you or your spouse's child, stepchild, foster child, or tax dependent.
What is the downside to dependent care FSA?
Drawbacks of Dependent Care FSA
If money is left over at the end of the year, it doesn't carry over to the next year. If your employer doesn't offer this account, there is no other way to get one. Your FSA can only pay for qualifying expenses, while you're working.
What happens to forfeited dependent care funds?
This means that money that is contributed to a FSA must be spent during the year it was contributed or it is forfeited. This is known as the “Use It or Lose It” Rule. Unused dollars do not just disappear; rather the responsibility shifts to the employer as to how to use the forfeited money.
Does dependent care FSA money roll over?
Dependent Care FSA: Participants can use money from this account to pay for dependent care of a child or adult. It's intended for individuals who need dependent care so they can work. Dependent Care FSAs don't offer a rollover option, but may offer a grace period or run-out period.
Do dependent care FSA funds expire?
Do they roll over if I don't use them by December 31st? All FSA funds expire on December 31st for active and benefits-eligible employees. FSAs through Justworks run on a calendar year (1/1 - 12/31), regardless of when you or your company joins. Funds do not rollover and unused funds on December 31st will be forfeited.
Is unused dependent care FSA taxable?
Absent additional legislation or IRS guidance in the future, "it seems any unused DC-FSA amounts available at the end of 2022 that are used during a regular two-and-a-half month grace period at the beginning of 2023 will be includable in the employee's gross taxable income for 2023 to the extent the total amount used ...
Can you cash out FSA?
You can't withdraw money from an ATM
Even though the FSA debit card functions like a standard debit card, it has certain limitations. One of those is that the money can only be spent on FSA-eligible expenses.
Where does FSA money go if not used?
For employees, the main downside to an FSA is the use-it-or-lose-it rule. If the employee fails to incur enough qualified expenses to drain his or her FSA each year, any leftover balance generally reverts back to the employer.
Is dependent care FSA use it or lose it?
The IRS defines employees who earned $155,000 or more in 2024 as “highly compensated,” and limits their 2025 DepCare FSA contributions to $2,500. The Dependent Care FSA is a use-it-or-lose-it plan, with a grace period for using the funds in your account.
Can I get a refund of dependent care FSA?
If you terminate employment for any reason mid-year and you still have a balance in your DCFSA, you may continue to submit claims for reimbursement for eligible expenses you incur after your termination date but before the end of the benefit period, up to the amount of your balance.
What if I didn't use my dependent care FSA?
Rollover and grace periods: DC-FSA funds don't typically roll over, but depending on your plan, you may have up to a 2.5-month grace period before the money is forfeited. A healthcare FSA may offer a grace period or a rollover.
Can I cash out my dependent care FSA?
It requires that all money you put into your FSA must be used to reimburse qualified expenses incurred during that plan year. Funds that are left over after the plan year ends are forfeited. The unused portion of your dependent care FSA can't be paid to you in cash or other benefits.
What happens if you put more than $5000 in dependent care FSA?
However, if you have more than $5,000 in dependent care expenses (effectively paid with after-tax dollars since you added it to your income), you may be able to use that additional amount to claim a dependent care tax credit on the Form 2441.
Can an employer refund unused FSA funds?
Again, you can distribute forfeited funds as a cash refund to employees as long as they contributed to the FSA. If employees with FSAs left the company, you may have to track them down to give them their refund. Also, remember that once you offer a cash refund to employees, that money is subject to payroll taxes.
At what age does dependent care FSA stop?
DCFSAs are tax-advantaged accounts that let you use pre-tax dollars to pay for eligible dependent care expenses. A qualifying 'dependent' may be a child under age 13, a disabled spouse, or an older parent in eldercare.
Is DCA use it or lose it?
Q: Is the DCA "use it or lose it"? A: Yes, the IRS's "use it or lose it" rule requires any unused funds to be forfeited at the end of the plan year's grace period. Participants have 90 days from the end of the plan year to file claims for the previous year.