Run-out period
Normally after the plan year ends, any remaining balance expires and you can’t file claims to be reimbursed with that money. If your employer offers a run-out period, you have extra time during the new plan year to file claims for expenses incurred during the previous plan year and be reimbursed with the previous plan year’s money. Important: A run-out period gives you extra time to file claims for expenses that already happened; not extra time to use expired money.
Employers can offer a run-out period for Health Care FSA, Limited Purpose FSA, and Dependent Care FSA plans.
Grace period
Normally after the plan year ends, any remaining balance expires and you can’t file claims to be reimbursed with that money. If your employer offers a grace period, you have extra time to use the previous plan year’s FSA money on expenses made in the new plan year. Important: A grace period gives you extra time to spend FSA money that would have otherwise been expired.
Employers can offer a grace period of up to 2.5 months for Health Care FSA, Limited Purpose FSA, and Dependent Care FSA plans. This means you can incur claims up to 2.5 months after the end of the prior plan year and still be reimbursed from remaining money from the prior plan year.
Carryover
If your employer offers a carryover, they can set a certain amount of unused FSA money to automatically carry over to your next year’s FSA after the run-out period. Because of this, most carryovers won’t finish until 90 days into the new plan year. The maximum carryover amount is determined by the IRS. Only FSAs and LPFSAs are eligible for carryover.
Any amount carried over from a previous plan year doesn’t count toward your annual election, so you can still contribute up to the IRS maximum for the new plan year.
Important: Your employer can offer either a grace period or a carryover, but not both. They're also not required to offer either and can change their policy each new plan year.
Example
Suppose you have an FSA account in 2022 and there's a 90-day run-out period and a 2.5 month grace period.
- Run-out period. You can submit claims for any eligible expenses incurred in 2022 until March 31, 2023. Your leftover 2022 funds would be used to reimburse these claims.
- Grace period. You can submit claims for any eligible expenses that occurred between Jan 1, 2023 and March 15, 2023 until March 15, 2023. Your leftover funds from 2022 would be used to reimburse these claims.
- Carryover. Starting April 1, 2023, you can use carryover funds from 2022 to pay for eligible expenses that occur between Jan 1, 2023 and Dec, 31 2023.
Note: The key difference between the run-out and the grace period is the dates of service. Forma reviews claims based on service date (as opposed to payment date) per IRS guidelines
A run-out period gives you additional time to submit claims incurred during the prior plan year. A grace period gives you additional time to incur (receive service) claims that can be reimbursed from prior year funds.