The IRS regulates Flexible Spending Accounts under IRC 125. According to the IRS guidelines, funds that are not claimed during the plan year are forfeited to the plan. This is called the “use it or lose it” clause. Funds in FSAs subject to this clause are not transferable from one plan year to another and they are not available for other benefits. The unused funds are retained by the plan sponsor, your employer, and can be used to offset administrative costs of the plan.
However, in October 2013 this original provision was altered. Employers sponsoring FSA plans can now allow employees to carry over up to $550 of their unused account balances to pay for qualified medical expenses incurred in the next year or establish a grace period of up to two and a half months in the new plan year in which the prior year’s balance may be used. Employers can offer one of these options, but not both, and they are not required to offer either.
Check with your benefits administrator to find out if your FSA carries a carry over or grace period option.