FSA Open Enrollment: Expect $1,500 of Bills? Elect $1,251 in the 12% Bracket, $1,662 in the 37%

Open enrollment season means picking a health FSA election for 2027, and the usual advice is “estimate your medical expenses.” That’s half the answer. The other half is your tax rate, because it decides how much risk of forfeiting money is worth taking.

We used the FSA Election Calculator on one example household: at least $600 of eligible spending next year, most likely $1,500, at most $3,000. Then we changed only the tax bracket.

The best election by tax rate

FSA contributions skip federal income tax, state income tax and the 7.65% employee FICA (IRC §125). The combined rate is what each elected dollar saves:

The same bills justify a bigger election at a higher rate. The last elected dollar saves 19.65 cents in the 12% bracket and 50.3 cents at the top, so the top earner can accept a 50% chance of losing it, while the 12% bracket should stop where the chance of losing it is about 20%.

The rule behind the column: elect the spending you’re (1 − rate) sure to reach. At 34.65%, that’s the amount you’re 65% sure to spend. It’s the newsvendor problem from operations research, where a seller stocks papers up to the point where the profit on a sale equals the expected loss on an unsold copy.

A carryover is worth more than it looks

The IRS lets plans carry up to $680 of unused 2026 money into 2027, or offer a grace period through March 15, but not both (IRS Notice 2013-71). With the carryover, the best election goes up by the full $680 in every row, and the expected net improves too:

Check your plan summary for which one you have before you pick a number. If your employer offers neither, the use-it-or-lose-it table above applies.

Your most likely bill is a fine shortcut

At 34.65%, electing exactly the most likely $1,500 instead of the best $1,465 costs about $1 in expected savings. The curve is flat near the top and steep past it: electing $2,000 drops the expected net to $300, $2,500 to $55. If you’re unsure, err low.

Where this doesn’t apply

• HSA-eligible coverage. A general-purpose FSA blocks HSA contributions. If you have a high-deductible plan, compare first; the HSA triple tax advantage usually wins for savers.
• Predictable spending. A fixed monthly prescription or scheduled orthodontic payments have no real range. Elect the known amount.
• A big bill early in the year. Your whole election is available on January 1, so a known January surgery can justify electing the full amount even at a low tax rate.
• A job change. Unspent money is generally forfeited when you leave the employer.
• Your deductible choice isn’t settled yet. Pick the health plan first; high vs low deductible changes how much you’ll spend out of pocket.

What to actually do

1. Find last year’s eligible spending on your FSA or insurer statement; use it as the most likely amount.
2. Set a low (what’s nearly certain) and a high (a bad year) estimate.
3. Look up your federal bracket, state rate and whether your plan has a carryover or grace period.
4. Run the numbers in the calculator and elect close to the best amount, rounding down when in doubt.
5. Not sure which rate your pre-tax dollars save? Marginal vs effective tax rate explains why it’s the marginal one.

Find your FSA election →