Due to the use of an appropriately designed pulse shaping prototype filter, filter bank multicarrier (FBMC) system can achieve low out of band (OoB) emissions and is also robust to the channel and synchronization errors. However, it comes at a cost of long filter tails which may reduce the spectral efficiency significantly when the block size is small. Filter output truncation (FOT) can reduce the overhead by discarding the filter tails but may also significantly destroy the orthogonality of FBMC system, by introducing inter carrier interference (ICI) and inter symbol interference (ISI) terms in the received signal. As a result, the signal to interference ratio (SIR) is degraded. In addition, the presence of intrinsic interference terms in FBMC also proves to be an obstacle in combining multiple input multiple output (MIMO) with FBMC. In this paper, we present a theoretical analysis on the effect of FOT in an MIMO-FBMC system. First, we derive the matrix model of MIMO-FBMC system which is subsequently used to analyze the impact of finite filter length and FOT on the system performance. The analysis reveals that FOT can avoid the overhead in time domain but also introduces extra interference in the received symbols. To combat the interference terms, we then propose a compensation algorithm that considers odd and even overlapping factors as two separate cases, where the signals are interfered by the truncation in different ways. The general form of the compensation algorithm can compensate all the symbols in a MIMO-FBMC block and can improve the SIR values of each symbol for better detection at the receiver. It is also shown that the proposed algorithm requires no overhead and can still achieve a comparable BER performance to the case with no filter truncation.