HSAs and FSAs for employers
Health savings accounts, the HDHPs that unlock them, and health FSAs — with every 2026 limit and the One Big Beautiful Bill's HSA changes.
Two accounts let employees pay medical costs with pre-tax money, and they are easy to confuse. A health savings account belongs to the employee and goes with them when they leave. A health FSA belongs to the employer's cafeteria plan and is mostly use-or-lose. The first depends on the plan the employee is enrolled in; the second does not.
HSAs, and the plan that unlocks them
Only an eligible individual may contribute to an HSA: someone covered by a high-deductible health plan on the first day of the month and by no other health plan that is not one. For 2026, an HDHP has a deductible of at least $1,700 self-only or $3,400 family, and out-of-pocket costs of no more than $8,500 or $17,000.
- HDHPCoverage on the first of the month
- ContributionsEmployee and employer, pre-tax, to one limit
- The accountCarried over and portable
- SpendingTax-free for medical care
Health FSAs
A health FSA is funded by the employee's salary reduction under the cafeteria plan, up to $3,400 for plan years beginning in 2026. What is not spent is forfeited — unless the plan adopts a grace period or a carryover, which may be up to $680 for 2026. A cafeteria plan can also offer dependent care assistance, excluded up to $7,500 for 2026.
HSA
- Good at
- The employee owns it and keeps it
- Balances carry over every year
- A higher limit: $4,400 self-only for 2026
- Watch for
- Requires HDHP coverage and no other non-HDHP coverage
- No contributions once the person is entitled to Medicare
- Best for
- Employees on an HDHP who want to save for later
Health FSA
- Good at
- Works with any health plan
- Needs no HDHP
- Watch for
- Use-or-lose beyond a carryover or grace period
- Stays with the employer's plan
- Best for
- Any plan, for predictable yearly costs
Wrong
HDHP + HSA, and a general-purpose health FSA
Right
HDHP + HSA, and a limited-purpose (dental and vision) FSA
§223 makes an HSA contributor ineligible while also covered by health coverage that is not an HDHP. A general-purpose health FSA paying the same expenses is that coverage.
Where this lesson's rules come from
The sources behind this lesson's requirements, by kind. Background reading explains; it is never the authority for a rule. Anything marked as a convention is ours, not the rule-maker's.
- Federal statute
- IRC §223(a), (b)(3), (c)(1) (opens in a new tab)Health savings accountsFree to read
- IRS guidance
- Rev. Proc. 2025-19, §2.01–.02 (opens in a new tab)2026 HSA limits, HDHP minimums and the excepted benefit HRAPDF · Free to read
- Rev. Proc. 2025-32, §4.15, §4.63 (opens in a new tab)2026 inflation adjustments: the health FSA limit and the QSEHRA maximumsPDF · Free to read
- IRS IR-2025-119 (Dec. 9, 2025); Notice 2026-5 (opens in a new tab)The One Big Beautiful Bill's HSA changes: bronze and catastrophic plans, telehealth, direct primary careFree to read
- IRS Pub. 969 (2025) (opens in a new tab)Health Savings Accounts and Other Tax-Favored Health PlansFree to read
- IRS Pub. 15-B (2026), §1 Cafeteria Plans; §2 Table 2-1 (opens in a new tab)Employer's Tax Guide to Fringe BenefitsPDF · Free to read
- Background reading — not an authority
- Wikipedia, “Health savings account” (opens in a new tab)Health savings accountFree to read
- Wikipedia, “Flexible spending account” (opens in a new tab)Flexible spending accountFree to read
The words this lesson teaches
Each links to its glossary definition, which also names the authority behind it and the components that render it.
- Health savings accountAn account the employee owns, funded pre-tax by the employee or the employer while they are covered by an HDHP, spent tax-free on medical care and carried from job to job. 2026 limits: $4,400 self-only, $8,750 family, plus $1,000 from age 55
- High-deductible health planA health plan with at least the year's minimum deductible and no more than its out-of-pocket maximum — for 2026, $1,700 and $8,500 self-only, $3,400 and $17,000 family. Coverage under one is what makes a person HSA-eligible; from 2026, Exchange bronze and catastrophic plans count too
- Health flexible spending arrangementA cafeteria-plan account the employee funds by salary reduction for the year's medical costs — up to $3,400 for 2026 — which is use-or-lose, softened by a grace period or a carryover of up to $680
- Cafeteria planA written plan that lets employees choose between cash and qualified benefits — health premiums, a health FSA, dependent care — so that what they choose is paid pre-tax: out of income-tax wages and out of FICA wages