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What Employers Can Do with Forfeited Employee FSA Balances

ARTICLE | May 13, 2026

Authored by Vasquez + Company

If your organization sponsors a flexible spending account (FSA) program, you may find yourself holding onto forfeited employee balances at the end of each plan year. Under the "use-it-or-lose-it" rule, employees who fail to spend down their FSA contributions forfeit those funds back to the employer. But what happens next is up to you. The IRS provides employers with several options for how those forfeited dollars can be used, from retaining the funds outright to redirecting them back to employees or applying them to plan administration costs. Understanding your options can help you make informed, compliant, and strategically sound decisions for your organization and your workforce.

Read the full article here.

 
Our firm provides the information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. This article is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.  
 

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