An HSA is your own account, needs a high deductible health plan and keeps unused money year after year. An FSA is set up by your employer and is generally use-it-or-lose-it. As of Nov 2026, IRS Publication 969 puts the HSA limit for 2026 at 4,400 dollars for self-only cover and 8,750 dollars for family cover.
Both accounts let you pay medical bills with money that hasn't been taxed, which is why they're so easy to mix up during benefits enrolment. They follow very different rules on who can open one, who owns the money and what happens to anything left over. Everything below comes from the Internal Revenue Service's Publication 969, the IRS guide to health savings accounts and other tax-favored health plans.
HSA and FSA side by side
| HSA (health savings account) | FSA (health flexible spending arrangement) | |
|---|---|---|
| Who sets it up | You, through a trustee, who can differ from your health plan provider | Your employer, often as part of a cafeteria plan |
| Main condition | You're covered by a high deductible health plan (HDHP) | Your employer offers one |
| Self-employed | Can open and fund one | Not eligible |
| Who can pay in | You, your employer, family members or anyone else on your behalf | You through salary reduction; your employer may add |
| Limit | For 2026: 4,400 dollars self-only, 8,750 dollars family, plus 1,000 dollars at 55 or older | For 2025: 3,300 dollars in salary reductions |
| Tax on the way in | Deductible even without itemizing; employer contributions excluded | No federal income or employment tax on contributions |
| Leftover money | Generally carried over, and stays with you if you change jobs | Lost unless the plan has a grace period or a carryover |
| Spending it on other things | Taxed, plus an additional 20% tax unless you're disabled, 65 or older, or it's after death | Not allowed: reimburses qualified medical expenses only |
Who qualifies for each account
For an HSA, Publication 969 lists four conditions. You're covered under an HDHP on the first day of the month, you have no other health coverage apart from what's permitted, you aren't enrolled in Medicare, and nobody can claim you as a dependent. Under the last-month rule, if you're eligible on the first day of the final month of your tax year (December 1 for most people), you're treated as eligible for the whole year, subject to other requirements.
For 2026, the IRS defines an HDHP as one with a minimum annual deductible of 1,700 dollars for self-only cover or 3,400 dollars for family cover, and maximum deductible plus out-of-pocket expenses of 8,500 dollars or 17,000 dollars. From the first month you're enrolled in Medicare, your HSA contribution limit is zero.
An FSA is simpler to get but narrower. The IRS describes health FSAs as employer-established benefit plans, and says self-employed persons aren't eligible. You choose how much to put in at the start of the plan year and can only change that election if the law and your plan allow it.
Why an ordinary health FSA can block your HSA
This is the trap most people only discover at tax time. Publication 969 says an employee covered by an HDHP and a health FSA that pays or reimburses qualified medical expenses can't generally make contributions to an HSA. In other words, a standard FSA from your employer can stop your HSA contributions, because it's being covered by it that counts, not spending from it.
The IRS does allow some combinations. You can still contribute to an HSA alongside a limited-purpose health FSA (which pays things like dental and vision care), a post-deductible FSA that pays nothing until the minimum annual deductible is met, or certain suspended or retiree-only HRAs. If your employer offers both accounts, check which kind of FSA you're being offered before you sign up.
Leftover money: carryover, grace period or forfeit
HSA money doesn't expire. The IRS says amounts that remain at the end of the year are generally carried over, earnings aren't taxed while held in the account, and the account is portable, so it stays with you if you change employers or leave work.
FSAs are generally use-it-or-lose-it plans. Your plan can soften that in one of two ways, but not both. It can offer a grace period of up to 2 1/2 months after the plan year ends, or let you carry over unused money to the following plan year: up to 660 dollars for 2025, or a lower amount your plan sets. Anything above the carryover is forfeited, and your employer isn't permitted to refund the balance to you.
What each account will and won't reimburse
Both pay qualified medical expenses tax-free. The IRS says over-the-counter medicine, whether or not prescribed, and menstrual care products count for an FSA, and FSA expenses can cover you, your spouse, your dependents and your child under 27. An FSA can't pay health insurance premiums, long-term care or amounts another plan already covers.
One FSA rule works in your favour: you must be able to receive your full annual election at any time during the coverage period, and you can use the FSA even before the money has been credited. With an HSA, you can take a distribution at any time, but only amounts used for qualified medical expenses are tax-free; the rest is taxed and usually hit with the 20% additional tax. For more on keeping more of what you earn, see my tax tips for the self-employed and when it's worth it to hire an accountant instead of doing it yourself.
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My advice on choosing between an HSA and an FSA
It depends on your health plan and your employer. If you have HDHP cover and want an account you own, that grows and follows you between jobs, the HSA rules in Publication 969 are built for that. If you don't have an HDHP and expect steady medical bills in the coming plan year, an employer FSA gives you the full election from day one, provided you plan to spend it. Check with the Internal Revenue Service's current limits and your benefits team before you enrol; these are the IRS rules as of Nov 2026, not personal advice.
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Frequently asked questions
Can I hold an HSA and an FSA at the same time?
Only with the right kind of FSA. Publication 969 says a general health FSA that reimburses medical expenses generally stops HSA contributions, but a limited-purpose or post-deductible FSA is allowed.
What is the HSA contribution limit for 2026?
The IRS says 4,400 dollars for self-only HDHP cover and 8,750 dollars for family cover, plus an extra 1,000 dollars if you're 55 or older at the end of the tax year.
Do I lose the money left in my FSA?
Generally yes, unless your plan offers a grace period of up to 2 1/2 months or a carryover. For 2025 the IRS caps the carryover at 660 dollars, and a plan can't offer both.
What happens to my HSA if I change jobs?
It stays with you. The IRS describes an HSA as portable: it stays with you if you change employers or leave the work force.
Can self-employed people open an FSA?
No. Publication 969 says self-employed persons aren't eligible for FSAs. They can contribute to an HSA if they have HDHP cover and meet the other conditions.
Can I use HSA money for things other than medical bills?
You can, but the IRS says non-medical withdrawals are taxed and face an additional 20% tax, unless you're disabled, 65 or older, or the distribution is made after death.
