What each one is
A health savings account (HSA) is a tax-favoured account that belongs to you. Publication 969 lets you deduct your contributions even if you do not itemize, pays out tax-free for qualified medical expenses, and says that amounts remaining at the end of the year are generally carried over. The account is portable: it stays with you if you change employers or leave the workforce. The condition is the insurance: you can contribute only while covered by a high deductible health plan (HDHP), with no other non-permitted health coverage, not enrolled in Medicare and not claimed as a dependent.
A health flexible spending arrangement (FSA) is an employer plan. You elect a yearly amount, it is taken from your pay before tax, and you spend it on qualified medical expenses during the plan year. No particular insurance is required. What is required is to spend it: FSAs are use-it-or-lose-it plans, and unspent amounts are forfeited unless the plan offers one of two softeners, a grace period of up to 2½ months after the plan year or a carryover of a limited amount into the next year. Publication 969 is explicit that a plan adopting a carryover provision is not permitted to also provide a grace period.
The 2026 figures
| For 2026 | HSA | Health FSA |
|---|---|---|
| Maximum contribution | $4,400 self-only, $8,750 family coverage | $3,400 salary reduction per employee |
| Catch-up | $1,000 more from age 55 | none |
| Insurance required | an HDHP: deductible at least $1,700 self-only or $3,400 family; out-of-pocket maximum at most $8,500 or $17,000 | none |
| Unused money at year end | carries over, all of it | forfeited, except a grace period of up to 2.5 months or a carryover of up to $680, if the plan offers one |
| Who owns it | you; portable between jobs | the employer's plan; elections are per plan year |
| Who can contribute | you, your employer, anyone, within the limit | you, through salary reduction |
| Non-medical use | taxed as income plus 20% additional tax before 65 | not allowed; medical expenses only |
| Source | Rev. Proc. 2025-19, Publication 969 | Rev. Proc. 2025-32, Publication 969 |
For couples, Publication 969 treats both spouses as having family coverage if either does, so they share one family limit, split equally unless they agree otherwise, while each spouse aged 55 or older makes the $1,000 catch-up into their own HSA. The FSA limit is per employee, and the publication notes that the carryover does not reduce the next year's maximum salary reduction.
What the tax break is worth
Both work the same way at the paycheck: the contribution comes off taxable income. The saving is the contribution times your marginal rate, and for payroll contributions to either account the Social Security and Medicare taxes usually come off too. The table shows the federal income tax saved alone at three marginal rates; the paycheck calculator shows the effect on an actual paycheck once state tax and payroll tax are included.
| Contribution | Saved at 12% | Saved at 22% | Saved at 24% |
|---|---|---|---|
| $1,000 | $120 | $220 | $240 |
| $2,000 | $240 | $440 | $480 |
| $3,400 (FSA maximum) | $408 | $748 | $816 |
| $4,400 (HSA self-only maximum) | $528 | $968 | $1,056 |
| $8,750 (HSA family maximum) | $1,050 | $1,925 | $2,100 |
The difference between the two accounts is not in this table; it is in what happens to money you do not spend. An FSA dollar saved at 22 percent and then forfeited is a dollar lost, not 22 cents gained. An HSA dollar not spent stays invested; the compound interest calculator shows what an unspent $4,400 a year becomes over a working life, and it is that growth, untaxed on the way in, while invested and on the way out for medical costs, that makes the HSA the stronger account for anyone who can afford to leave the money alone.
Which one, when
- Your plan is an HDHP and you can cover the deductible from savings: the HSA. Contribute what you can, pay small bills from cash flow if you want the balance to grow, keep the receipts.
- Your plan is not an HDHP: the HSA is not available; a health FSA is the only pre-tax route, so estimate next year's predictable costs, glasses, prescriptions, copays, dental, and elect close to that, not the maximum.
- You have both offered and want both: pair the HSA with a limited-purpose FSA for dental and vision; a general-purpose FSA is other health coverage that disqualifies HSA contributions.
- You expect to change jobs: the HSA comes with you; an FSA election usually ends with employment, and unspent money stays behind, so time large elections and large expenses together.
- You are over 55: the HSA catch-up adds $1,000 a year, and after 65 the account doubles as a retirement account, taxed only as income on non-medical withdrawals.
The budget planner is the place to decide the election amount: last year's medical spending from the statements, adjusted for what you know is coming, is the number to put against the FSA limit. This guide describes the IRS rules and figures for 2026 as published; plan documents add their own terms, and a benefits office or tax adviser can confirm how they apply to you.
Frequently asked questions
What are the HSA contribution limits for 2026?
Rev. Proc. 2025-19 sets the 2026 HSA limit at $4,400 for self-only coverage and $8,750 for family coverage under a high deductible health plan. Account holders aged 55 or older can add $1,000. For 2026 a plan counts as a high deductible health plan if its annual deductible is at least $1,700 for self-only or $3,400 for family coverage and its out-of-pocket maximum, excluding premiums, is no more than $8,500 or $17,000.
What is the FSA limit for 2026?
Rev. Proc. 2025-32 sets the maximum salary reduction for a health flexible spending arrangement at $3,400 for plan years beginning in 2026. If the plan allows unused money to carry over, the most that can carry into the next year is $680; a plan may instead offer a grace period of up to 2½ months, but Publication 969 says a plan with a carryover cannot also offer a grace period.
What is the main difference between an HSA and an FSA?
Who owns the money and what happens to it at year end. An HSA is your account: Publication 969 says amounts remaining at the end of the year are generally carried over, and the account stays with you when you change jobs. A health FSA is an employer plan with a use-it-or-lose-it rule, softened only by a grace period or a limited carryover. An HSA also requires a high deductible health plan; an FSA does not.
Can I have both an HSA and an FSA?
Not a general-purpose health FSA alongside an HSA, because Publication 969 requires that an HSA holder have no other health coverage that is not permitted insurance, and a general health FSA counts as other coverage. Employers that offer both typically pair the HSA with a limited-purpose FSA restricted to dental and vision expenses. Check which kind your plan is before enrolling in both.
What happens if I use HSA money for something other than medical costs?
The amount is included in income and, under Publication 969, subject to an additional 20 percent tax, unless the distribution is made after you reach age 65, become disabled or die. After 65 the 20 percent tax falls away and non-medical withdrawals are simply taxed as income, which is why an HSA is often described as a retirement account with a medical bonus.
Sources
- IRS Rev. Proc. 2025-19 (PDF): 2026 inflation adjusted amounts for health savings accounts ($4,400 self-only and $8,750 family contribution limits; HDHP minimum deductibles of $1,700 and $3,400; out-of-pocket maximums of $8,500 and $17,000)
- IRS Rev. Proc. 2025-32, section 4.15 (PDF): 2026 health FSA salary reduction limit of $3,400 and maximum carryover of $680
- IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans (HSA eligibility, other health coverage and the limited-purpose FSA exception, the shared family limit and per-spouse catch-up, deductible contributions, tax-free distributions for qualified medical expenses, carryover and portability, the additional 20 percent tax, the $1,000 catch-up; health FSA use-it-or-lose-it, the 2½-month grace period, the carryover option, not both)