Choose an HSA if you have an HSA-eligible health plan and can leave some money in the account. It has higher limits, the balance is yours to keep forever, and it can be invested. Choose a health FSA if your plan isn’t HSA-eligible and you can predict your medical spending for the year. You can spend the full election from day one, but most unused money is forfeited. If you have an HSA-eligible plan and also expect dental or vision costs, you can pair the HSA with a limited-purpose FSA.
Key takeaways
- The 2027 HSA limits are $4,500 for self-only coverage and $9,000 for family coverage, plus $1,000 if you are 55 or older (IRS, as of October 2026).
- The health FSA limit for 2027 plan years is $3,500, with a carryover of up to $700 (IRS, as of November 2026).
- At the 22% bracket, a full $4,500 HSA contribution through payroll saves $1,334.25 in federal income and FICA taxes. A $3,500 FSA saves $1,037.75.
- Starting in 2026, Bronze and catastrophic Marketplace plans count as HSA-compatible, so more people can open an HSA.
- Over-electing an FSA is costly. If you elect $3,500, spend $2,500 and your plan has no carryover or grace period, most of the tax benefit is wiped out.
The short version: how they differ
Both accounts let you pay medical costs with money that hasn’t been taxed. The differences are who owns the money, what happens to leftovers, and who can open one.
| Feature | HSA | Health FSA (general purpose) | Limited-purpose FSA |
|---|---|---|---|
| Who can open one | People covered by an HSA-eligible plan with no disqualifying other coverage, not enrolled in Medicare, not claimed as a dependent | Employees whose employer offers one | Employees whose employer offers one; designed for HSA owners |
| Contribution limit | 2027: $4,500 self-only, $9,000 family; $1,000 extra at 55+ | 2027: $3,500 per employee | Same limit as the employer’s health FSA |
| What it pays for | Qualified medical expenses | Qualified medical expenses | Generally dental, vision and preventive care |
| Unused money | Stays in your account indefinitely | Forfeited, unless the plan offers a carryover (up to $700 from 2027 plan years) or a grace period of up to 2½ months, not both | Same use-it-or-lose-it rules as a health FSA |
| Who owns it | You; it goes with you if you change jobs | Tied to your employer’s plan | Tied to your employer’s plan |
| Access to money | Only what has been deposited so far | Full annual election available from the start of the plan year | Full annual election available from the start of the plan year |
| Can be invested | Yes, if your HSA provider offers investments | No | No |
| Works with an HSA | Not applicable | No; it generally blocks HSA contributions | Yes |
Who can have an HSA
To contribute to an HSA, you need to be covered by a high-deductible health plan (HDHP) on the first day of the month. You also can’t have other health coverage that pays before the deductible, can’t be enrolled in Medicare, and can’t be claimed as someone else’s dependent (IRS Publication 969). For 2027, an HDHP must have a deductible of at least $1,750 for self-only or $3,500 for family coverage. Its out-of-pocket limit can’t be more than $8,700 or $17,400 (IRS Rev. Proc. 2026-24).
The 2025 tax law expanded eligibility. Starting January 1, 2026, Bronze and catastrophic plans count as HSA-compatible, whether you buy them on or off the Marketplace. People in certain direct primary care arrangements can still contribute and can use HSA money for the periodic fees. Telehealth before the deductible no longer disqualifies you (IRS, as of October 2026). For 2027, a direct primary care arrangement only qualifies if its fees are no more than $150 a month for one person or $300 for more than one (IRS Rev. Proc. 2026-24).
Watch for coverage that quietly disqualifies you. A general-purpose health FSA counts as other coverage, so having both blocks HSA contributions. Ask whether your spouse’s FSA can reimburse your expenses too. Once you enroll in Medicare, your HSA contribution limit drops to zero starting that month. If your Medicare coverage is backdated, contributions for those earlier months become excess contributions (IRS Publication 969).
Why the HSA is called triple tax-advantaged
- Going in: Contributions through your employer’s cafeteria plan aren’t counted as wages for income tax or FICA. Contributions you make on your own are deductible whether or not you itemize, but they don’t save FICA.
- While it’s invested: Interest and investment earnings in the account aren’t taxed.
- Coming out: Withdrawals for qualified medical expenses are tax-free. Other withdrawals are taxed as income and, before age 65, generally hit with an extra 20% tax. After 65 the extra tax no longer applies (IRS Publication 969).
You also don’t have to pay yourself back right away. You can pay a medical bill out of pocket, keep the receipt, let the HSA grow, and reimburse yourself years later, as long as the expense was incurred after you opened the account. In general, HSA money can’t pay insurance premiums. Exceptions include COBRA, coverage while you receive unemployment benefits, long-term care insurance and, at 65 or older, Medicare premiums other than Medigap. State income tax treatment can differ from federal, so check your state’s rules.
How a health FSA works
You choose a yearly amount during your employer’s open enrollment, and it comes out of each paycheck before tax. The key feature is the uniform coverage rule: you can be reimbursed up to your full annual election at any time during the plan year, even if you have only contributed part of it so far (IRS Publication 969). If you expect a big expense early in the year, such as a procedure in February, an FSA is a good fit.
The catch is use-it-or-lose-it. Your employer may allow either a grace period of up to 2½ months after the plan year ends or a carryover of unused money into the next plan year (up to $680 from 2026 plans and $700 from 2027 plans), but not both. It may also offer neither. Ask your benefits office which applies before you choose an amount. A separate dependent care FSA covers child care and similar costs. It has its own limit and is not interchangeable with a health FSA.
Worked example: what each account saves at the 22% bracket
Assume you are in the 22% federal bracket and contribute through payroll. Payroll contributions also avoid the employee’s 6.2% Social Security and 1.45% Medicare taxes, a combined 7.65% (IRS Topic 751). The Social Security part applies only on wages up to $184,500 in 2026. State income tax savings, if any, are not included.
| Contribution | Amount | Federal income tax saved (22%) | FICA saved (7.65%) | Total saved |
|---|---|---|---|---|
| HSA, self-only, 2027 limit, via payroll | $4,500.00 | $990.00 | $344.25 | $1,334.25 |
| HSA, family, 2027 limit, via payroll | $9,000.00 | $1,980.00 | $688.50 | $2,668.50 |
| HSA, family + one $1,000 catch-up, via payroll | $10,000.00 | $2,200.00 | $765.00 | $2,965.00 |
| HSA, self-only, contributed on your own (deducted on your return) | $4,500.00 | $990.00 | $0.00 | $990.00 |
| Health FSA, 2027 limit, via payroll | $3,500.00 | $770.00 | $267.75 | $1,037.75 |
Going through payroll is worth $344.25 more than contributing on your own for a self-only HSA. If your employer offers payroll deduction, use it.
Now take an FSA where you elect the full $3,500 but spend only $2,500. That leaves $1,000 unused:
- Plan with no carryover or grace period: You forfeit $1,000. Your $1,037.75 tax saving shrinks to a net $37.75.
- Plan with a carryover: $700 rolls into next year and $300 is forfeited.
- Right-sized election: If you had elected $2,500, you would have saved $741.25 with nothing at risk.
In a plan with no carryover, an FSA still beats not using one as long as you spend at least $2,462.25 of a $3,500 election. Below that, forfeitures cost more than the tax saved. Base your election on costs you can count on: regular prescriptions, scheduled dental work, glasses, the deductible you usually meet. For a new baby or planned surgery, see planning your finances for a new baby for the other costs to budget.
How to decide at open enrollment
- Check your plan first. If the plan you are choosing is HSA-eligible, the HSA is usually the stronger account. If it isn’t, the FSA is your only option of the two.
- Pair them if it fits. With an HSA-eligible plan, add a limited-purpose FSA for predictable dental and vision costs. Save the HSA for everything else or for later.
- Count employer money. Employer HSA contributions count toward the annual limit. Lower your own contribution so the total stays under it.
- Keep the deductible covered. An HSA only holds what you have put in. If the deductible arrives before the money does, you pay from savings. Plan for it in your monthly budget.
- Mind the deadlines. HSA contributions for a tax year can be made until the tax-filing deadline the following April. FSA elections are fixed for the plan year unless you have a qualifying life event.
When each account is a bad idea
- An HDHP just to get an HSA. If you have regular, expensive care, a lower-deductible plan may cost less overall even after the HSA tax savings. Compare total yearly cost first.
- An HSA you can’t fund. An empty HSA does nothing for you. A high deductible with no savings behind it can push medical bills onto a card or a loan. See whether a loan for medical bills makes sense.
- A large FSA when you might leave your job. Unused money generally stays with the employer’s plan when you leave, unless you elect continuation coverage. The flip side is that if you have spent more than you contributed before you leave, you generally keep the difference.
- An HSA as you approach Medicare. Contributions must stop when Medicare starts. Plan the last year’s contribution so you don’t make excess contributions.
FAQ
Can I have an HSA and an FSA at the same time?
Only if the FSA is limited-purpose, which generally means dental, vision and preventive care. A general-purpose health FSA counts as other coverage and makes you ineligible to contribute to an HSA for those months.
What is the 2027 FSA limit?
For plan years beginning in 2027, you can put up to $3,500 into a health FSA through salary reduction. Plans that allow a carryover can let up to $700 of unused money roll into the next year. The IRS announced these figures on November 5, 2026 (Rev. Proc. 2026-35). The 2026 limit was $3,400 with a $680 carryover, and your employer may set a lower limit.
Is a Bronze Marketplace plan HSA-eligible now?
Yes. Starting January 1, 2026, Bronze and catastrophic plans count as HSA-compatible under the 2025 tax law. On HealthCare.gov, use the “Eligible for an HSA” filter when comparing plans.
What happens to my HSA when I turn 65?
The account stays yours. Non-medical withdrawals after 65 are taxed as income but no longer face the extra 20% tax. Once you enroll in Medicare, you can’t contribute any more, but you can keep spending the balance, including on Medicare premiums other than Medigap.
Can I change my FSA election mid-year?
Generally only after a qualifying change in status, such as marriage, divorce, a birth or a change in employment, and only if your employer’s plan allows it. HSA contributions, by contrast, can usually be changed whenever your employer’s payroll allows.
Sources
- IRS, Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans, accessed Oct 2026
- IRS, Revenue Procedure 2026-24 (2027 HSA, HDHP and DPCSA amounts), accessed Oct 2026
- IRS, Revenue Procedure 2025-32 (2026 inflation adjustments, health FSA limit), accessed Oct 2026
- IRS, Revenue Procedure 2026-35 (2027 inflation adjustments, health FSA limit and carryover), accessed Nov 2026
- IRS, IR-2026-133: IRS releases tax inflation adjustments for tax year 2027, accessed Nov 2026
- IRS, Notice 2026-5: Expanded HSA availability under the 2025 tax law, accessed Oct 2026
- IRS, One, Big, Beautiful Bill provisions, accessed Oct 2026
- IRS, Topic 751: Social Security and Medicare withholding rates, accessed Oct 2026
- HealthCare.gov, The “metal” categories, accessed Oct 2026
This article is general education, not individualized financial, tax or legal advice.
