FSA carryover and grace period: eye drops

IRS rules let a health FSA plan offer either a grace period of up to 2½ months after the plan year ends, or a carryover of a limited unused balance into the next year, but not both. Some plans offer neither. Over-the-counter eye drops like Quell are eligible FSA purchases without a prescription, so leftover money can go toward them under whichever option your plan has.

Grace period vs. carryover: the difference

Both options soften the use-it-or-lose-it rule, but they work in opposite ways. IRS Publication 969 describes them, and they trace back to two IRS notices: Notice 2005-42 for the grace period and Notice 2013-71 for the carryover.

• Grace period: for up to 2½ months after the plan year ends, you can buy eligible items and pay for them with last year’s leftover money. For a calendar-year plan, that window can run to March 15. Anything still unspent after the window is forfeited.
• Carryover: a capped portion of unused money rolls into the next plan year, and you can spend it any time that year. Anything above the cap is forfeited at year end.
• Neither: the money must be spent on expenses incurred by the last day of the plan year.

Publication 969 states that a plan with a carryover provision can’t also offer a grace period for the health FSA. Your employer chooses which, if either, to include, and can set a carryover cap lower than the IRS maximum.

What is the FSA carryover limit?

The IRS sets the carryover limit each year and adjusts it for inflation, which is why searches for the current year’s and next year’s figure are so common. Your plan can use that limit or a lower one. Your plan administrator can tell you yours, and it’s usually listed in the benefits portal or the summary plan description.

Two details people miss: the carryover amount often can’t be used until the new plan year has actually started, and some plans require you to re-enroll in the FSA for the next year to keep the carried-over money. Ask your administrator about both.

Do eye drops count as FSA eligible?

Yes. Since the CARES Act took effect in 2020, over-the-counter medicines can be bought with FSA and HSA money without a prescription. Quell is an over-the-counter drug with a standard Drug Facts panel, and its Uses read: For use as a protectant against further irritation or to relieve dryness of the eye. Why OTC eye drops count for HSA and FSA explains the rule in more depth.

Which date counts for a grace-period purchase?

During a grace period, what matters is when the expense is incurred, and plans decide how to read that for an online order. Some go by the date on the receipt, which for Quell is the day you pay. Others may look at when the item was delivered. The confirmation email shows the payment date. The site doesn’t promise a delivery date, so if your plan counts delivery, order well before the grace period closes rather than in its last week.

Planning a carryover year

A carryover doesn’t create a deadline rush in December, which makes it a good time to plan rather than stock up. A few steps:

• Log in to your FSA portal and note your balance and your plan’s carryover cap.
• Subtract what you expect to spend on doctor visits, prescriptions and other items before the plan year ends.
• If the remaining balance is above the cap, consider eligible purchases you’d make anyway, such as eye drops you use regularly.
• Don’t buy more than you’ll use before the expiration date. Do eye drops expire? shows where to check.
• Keep the confirmation email as your receipt for any claim.

Paying with an FSA card or filing a claim

Whether an FSA debit card is accepted at checkout depends on the card and the plan. If it’s declined, you can pay with another card and submit a claim for reimbursement, as long as your plan allows that. The receipt needs to show what you bought, the date and the amount. How to file an FSA claim for eye drops walks through the paperwork.

Many plans also set a run-out period, a deadline after the year or grace period ends for submitting claims for expenses you already incurred. It’s separate from the grace period: the run-out lets you file paperwork late, not buy things late. Check both dates in your plan documents.

HSAs don’t have either rule

A health savings account isn’t subject to use-it-or-lose-it at all, so it has no grace period or carryover. The balance stays yours from year to year. If you have both an HSA-compatible limited-purpose FSA and an HSA, the FSA rules above apply only to the FSA. Can I use HSA or FSA funds for eye drops? covers both accounts.

Ordering Quell with leftover FSA money

Orders go through guest checkout, with no account needed. Shipping is $10.00, free on 3 or more bottles, and Quell ships only within the US. Unopened bottles can be refunded within 30 days of delivery without sending them back. If you’re not sure whether a purchase fits your plan’s timing, ask the plan administrator before you order rather than after.