HSA vs. FSA: How Tax-Advantaged Health Accounts Work

A health savings account (HSA) and a flexible spending account (FSA) both let you pay for medical costs with money that is not taxed. The big differences are who can open one, who owns the money, and what happens to the balance at the end of the year. An HSA requires a high deductible health plan and keeps rolling over. A health FSA comes through an employer and is generally use-it-or-lose-it.

This guide is for employees choosing benefits during open enrollment, and for anyone considering a high-deductible plan. You will learn how each account works, see the 2026 IRS limits, work through a tax example, and get a checklist for choosing.

How an HSA works

An HSA is an account you own, opened with a bank or other qualified trustee. IRS Publication 969 says you are eligible if you are covered by an HDHP on the first day of the month, have no other health coverage except specific permitted types, are not enrolled in Medicare, and cannot be claimed as another person's dependent. Spouses who each want an HSA need separate accounts, since joint HSAs are not allowed.

Contributions are tax-advantaged, the money can grow in the account, and withdrawals for qualified medical expenses are tax-free. Anyone can contribute for you, including your employer. The account is portable, so it stays with you if you change employers or leave the workforce, and unspent money rolls over from year to year. If you withdraw funds for non-medical reasons, the amount is generally taxed and may face an additional tax, so check Publication 969 before doing so.

How a health FSA works

A health FSA is set up through your employer. You choose an annual amount during enrollment, it comes out of your paychecks before taxes, and you are reimbursed when you submit proof of an eligible expense. HealthCare.gov says your employer may contribute but is not required to. Because the employer sponsors it, the account generally does not follow you if you leave.

Federal rules let employers offer a limited extension, but not a full rollover. An employer may allow a grace period of up to 2.5 extra months, or a carryover of a capped amount into the next year, but not both, and it is not required to offer either. For 2026 the IRS carryover cap is $680 according to Revenue Procedure 2025-32. Your employer can set lower limits, so read your plan documents. Any money left beyond those rules is generally forfeited.

2026 limits at a glance

Figures change every year, so confirm the current ones on IRS.gov before you set contributions.

The IRS has also announced HSA limits for 2027 of $4,500 for self-only and $9,000 for family coverage, according to the Journal of Accountancy. The HDHP rules and limits are in IRS Revenue Procedure 2025-19 for 2026.

HSA vs. FSA comparison

A limited-purpose FSA, which pays for dental and vision care and preventive care, can be used alongside an HSA, according to Publication 969. If you are offered both a general-purpose FSA and an HDHP, you must pick, because a general-purpose FSA that covers medical expenses blocks HSA contributions.

Which expenses are eligible

Both accounts can generally pay for deductibles, copayments, and prescription medications. HealthCare.gov lists these as eligible FSA expenses, along with medical equipment, supplies, and diagnostic devices, but not insurance premiums. Rules for over-the-counter items, vision, and dental differ by account, and they have changed over time, so check your plan's eligible-expense list or ask your plan administrator. Keep receipts for any purchase you are unsure about.

Worked example

Say you are in the 22% federal tax bracket and have a family HDHP. You put $3,000 into an HSA over the year. This is a hypothetical case and ignores state taxes and payroll taxes.

The $900 stays in the account. Compare that with a health FSA where you elect $3,000 and spend only $2,100. You would generally lose the unspent $900, unless your plan has a carryover that covers part of it.

For an FSA, estimate your costs before electing. Say you expect $250 for glasses, $200 for dental copays, $240 for prescriptions, and $60 for doctor visit copays. That is $750, so electing around $700 to $750 is safer than electing $2,000.

How to choose

1. List your plan options. Find out whether your employer offers an HSA-eligible HDHP, a health FSA, and a limited-purpose FSA.
2. Estimate medical spending. Add up last year's copays, prescriptions, dental, and vision. Include known future costs.
3. Compare total cost, not just premiums. An HDHP often has a lower premium but a higher deductible. Add the premium and the potential out-of-pocket maximum.
4. Check your cash cushion. An HDHP works best if you can cover the deductible. A starter cushion is covered in building an emergency fund on a tight budget.
5. Pick the account that fits. If you have an HDHP, an HSA is usually the more flexible choice. If you do not, a health FSA can help with predictable expenses.
6. Set contributions and keep records. Choose an amount you will use, and save receipts for any claim.

Common mistakes

• Over-electing an FSA. Choosing a large amount you will not spend can mean forfeiting money.
• Contributing to an HSA without eligibility. Medicare enrollment, other coverage, or a general-purpose FSA can disqualify you. Excess contributions can trigger tax problems.
• Forgetting the plan deadlines. Your FSA has a plan year end and a claims deadline set by your employer.
• Treating the HSA as a spending account only. You can leave the balance in the account to roll over. Whether to invest it depends on your goals and risk tolerance.
• Assuming premiums are eligible. HealthCare.gov says FSA funds do not pay insurance premiums.
• Not updating when life changes. A new job, Medicare enrollment, or a coverage change can alter your eligibility.

Frequently asked questions

Can I have an HSA and an FSA at the same time?

Generally not if the FSA is a general-purpose health FSA. A limited-purpose FSA, which pays for dental, vision, and preventive care, can be combined with an HSA.

What happens to my HSA if I change jobs?

It stays with you. The HSA is portable, and you can keep contributing as long as you have an HSA-eligible HDHP.

What happens to unused FSA money?

Unless your employer offers a carryover or grace period, you generally lose it at the end of the plan year. The employer can offer one or the other, not both.

Do the limits change every year?

Yes. The IRS adjusts them for inflation, so check IRS.gov for the current year before enrolling.

Next steps

1. Find your benefits guide and note whether an HSA-eligible HDHP and an FSA are offered.
2. Add up last year's medical, dental, vision, and prescription costs.
3. Confirm the current-year limits on IRS.gov and your plan's FSA rollover or grace-period rule.
4. Make your choice during open enrollment and set up a folder for receipts.