Key takeaways

• FSAs and HSAs can help reduce taxable income while helping households plan for health care costs.
• HSAs offer greater flexibility and higher contribution limits, and funds may be rolled over each year and invested.
• FSA funds are made immediately available at the beginning of each year and typically follow a “use-or-lose” rule.

More U.S. households are leaning on Flexible Spending Accounts and Health Savings Accounts to help keep healthcare costs in check. HSA assets reached roughly $159 billion across 40 million accounts by mid-year of 2025, while the average FSA contribution grew to $1,413 in 2023.^1,2 Between routine checkups and unexpected medical bills, expenses can add up quickly. This is a major reason why tax-advantaged health accounts are becoming central to how people manage both current health care spending and future costs.

FSA vs. HSA at a glance

Let’s look at the key aspects that differentiate FSAs and HSAs.³

The biggest difference between an FSA and an HSA is how the account is structured and how long the money can work for you. An FSA is typically an employer-sponsored tool for near-term health care spending, with full annual funds often available at the start of the plan year. An HSA, by contrast, may offer more long-term flexibility for people who qualify through an HSA-eligible health plan, since unused funds can generally roll over, stay with the account holder, and potentially be invested.

What are Flexible Spending Accounts (FSAs)?

An FSA, short for Flexible Spending Account, is a tax-advantaged account offered by employers as a worker benefit. Health FSAs typically give employees up-front access to the full elected annual FSA amount at the beginning of each plan year, and often follow a “use-or-lose” rule, meaning unused funds could be forfeited at the end of the plan year.^4,5 Having up-front access to FSA funds may help ease cash-flow pressure, help households cover out-of-pocket costs before payroll contributions have accumulated, and make health care expenses easier to plan for within the broader household budget. In some cases, employees may be able to continue participation through COBRA, depending on plan terms and account balance.

What are some FSA tax benefits?

Employees can set aside pre-tax income to cover medical costs, lowering their annual taxable income. FSA distributions are tax-free when spent on qualified medical expenses such as copays, prescriptions, medical equipment, or certain over-the-counter health care products.⁶ In addition, voluntary contributions made by employers are excluded from an employee’s taxable income, although employer contributions are not guaranteed unless stated within your specific plan.⁷

Read more: HSA, FSA & HRA reimbursement explained

What are the FSA contribution limits?

The 2026 FSA contribution limit is $3,400 per plan year, and employees can typically elect to contribute less depending on their needs. Married couples that each have their own employer-sponsored plan may contribute up to this $3,400 limit per FSA, bringing their household’s total annual FSA contribution limit to $6,800. For 2026, if the plan permits a carryover (and does not offer a grace period) up to $680 of unused funds can be carried over to the next plan year without counting toward the next year’s contribution limit.⁸

FSA contributions are often deducted periodically from an employee’s paychecks as agreed upon within their salary reduction agreement.^9,10 The deducted amount is determined by the employee during their open enrollment period.

Read more: Stocking up: Savers can front load 2026 money contributions

Who is eligible for an FSA?

To be considered eligible for an FSA, individuals must typically work for an employer that offers FSAs as an employment benefit. FSAs are usually tied to the employer, meaning that FSA eligibility may end when an employee leaves their job. Individuals who are self-employed are typically not eligible to open an FSA.¹¹

Who might an FSA be better for?

An FSA may be better for individuals and households that have a general idea of their annual health care expenses, such as doctors’ visits, medications (prescription and over-the-counter), or dental care.

What are Health Savings Accounts (HSAs)?

A Health Savings Account (HSA) is a tax-advantaged account for people enrolled in an HSA-eligible high-deductible health plan (HDHP) that can be used to pay for qualified medical expenses.¹²

Because unused funds can stay in the account and potentially grow over time, an HSA can work as both a way to cover current medical bills and a longer-term health or retirement savings tool. HSA funds may also be invested in stocks, bonds, and mutual funds — a unique feature that distinguishes HSAs from other health care savings tools.

Empower’s no-cost HSA calculator can be used to explore the long-term earnings potential   of HSA funds eligible for investment.

What are some HSA tax benefits?

HSAs are often highlighted for their triple tax advantage: contributions are tax-deductible, earnings may grow tax-free, and withdrawals for eligible health care costs are also tax-free.¹³ After an individual turns age 65, HSA withdrawals for non-medical expenses may be penalty-free and are typically taxed as ordinary income.¹⁴

Read more: This savings account has tax advantages for life

What are the HSA contribution limits?

The 2026 HSA contribution limits are $4,400 annually for those enrolled in a self-only HDHP and $8,750 annually for those enrolled in a family HDHP. Individuals who are 55 or older at the end of the tax year can contribute an additional $1,000 to their HSA, bringing their total 2026 annual contribution amount up to $5,400 for individuals and $9,750 for families.

Who is eligible for an HSA?

To be eligible for an HSA, individuals must be covered under a qualifying HDHP and meet additional criteria outlined by the IRS. The IRS also requires that the individual is not enrolled in Medicare and does not have other disqualifying health coverage (such as a general-purpose FSA), except that permitted by the IRS. Those claimed as dependents under another’s tax return may also not be eligible for an HSA.¹⁴

Who might an HSA be better for?

An HSA may be better for individuals looking to leverage their account as a long-term savings and investment opportunity. The potential ability to carry over funds and maintain control of the account regardless of employment can be ideal for individuals who prioritize flexibility over immediate access to funds per plan year.

What changed in 2026?

Several key changes in 2026 have impacted the contribution and eligibility requirements for FSAs and HSAs.

• 2026 HSA contribution limits are $4,400 for self-only coverage and $8,750 for family coverage.
• 2026 HDHP thresholds are $1,700 self-only and $3,400 family, with out-of-pocket maximums of $8,500 and $17,000.
• The 2026 health FSA salary reduction limit is $3,400, and if a plan allows carryover, the maximum carryover is $680.¹⁵
• For 2026, Bronze and Catastrophic plans may qualify as HSA-eligible HDHPs if they meet IRS requirements , certain direct primary care (DPC) service arrangements may be compatible with HSAs eligibility, and access to telehealth and other remote care services before meeting HDHP deductibles has been extended and may be available on an ongoing basis depending on current law.¹⁶

The bottom line

Enrolling in the right health account involves understanding IRS rules and long-term flexibility. FSAs may be the right fit for those with predictable yearly expenses, such as prescriptions. HSAs, however, may be better for households prioritizing long-term savings and investment, and those who would like great control and flexibility over their accounts. Plan features and eligibility rules may vary by employer and are subject to IRS regulations.

Frequently Asked Questions: FSA vs. HSA

What happens if you change jobs or retire?

HSAs belong to the individual or employee, while FSAs are managed by the employer offering the FSA. If an HSA is offered as an employee benefit, then the worker will continue to maintain account ownership even after their employment ends. FSA benefits, however, typically end once an employee ceases to work for the company offering the FSA.

Can I have both an FSA and an HSA?

The IRS does not allow individuals to contribute both to a Health FSA and an HSA within the same plan year. However, it may be possible to contribute to an HSA while still receiving coverage under other types of employer-provided plans, such as:¹⁷

• Limited Purpose Health FSA or HRA
• Suspended HRA
• Post-Deductible Health FSA or HRA
• Retiree-Only FSA

What Is a high-deductible health plan (HDHP)?

A high-deductible health plan (HDHP) is a type of HSA-eligible plan with a higher deductible than traditional insurance plans. HDHPs typically offer lower monthly premiums, and households may pay more in health care costs until the plan’s deductible is reached.

In the 2026 plan year, HDHPs have a minimum deductible of $1,700 for self-only coverage and $3,400 for family coverage. However, the annual limit for out-of-pocket expenses, including deductibles and copayments, are $8,500 for self-only coverage and $17,000 for family coverage.¹⁸

How can I tell if I’m enrolled in a high-deductible health plan (HDHP)?

You can tell if you are enrolled in a high-deductible health plan (HDHP) by checking with your plan directly. Policy materials will typically state whether the plan is an HDHP, and many policies even contain “HSA” or “HDHP” within the plan name.