# 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.

Source: https://lopifi.com/learn/hsa-vs-fsa-for-employers
Part of: Lopifi — US GAAP books on autopilot, checked by a CPA (https://lopifi.com)

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**HSA vs FSA: what should a startup offer?** 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](https://lopifi.com/md/glossary/health-savings-account) belongs to the employee and goes with them when they leave. A [health FSA](https://lopifi.com/md/glossary/health-flexible-spending-arrangement) 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](https://lopifi.com/md/glossary/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.

> “In the case of an individual who is an eligible individual for any month during the taxable year, there shall be allowed as a deduction for the taxable year an amount equal to the aggregate amount paid in cash during such taxable year by or on behalf of such individual to a health savings account of such individual.”

— [IRC §223(a), (b)(3), (c)(1)](https://www.law.cornell.edu/uscode/text/26/223), Health savings accounts

HDHP (Coverage on the first of the month) → Contributions (Employee and employer, pre-tax, to one limit) → The account (Carried over and portable) → Spending (Tax-free for medical care)

How an HSA is fed and spent.

|  | Self-only | Family |
| --- | --- | --- |
| HSA contribution limit | 4,400 | 8,750 |
| HSA catch-up, age 55 or older | 1,000 | 1,000 |
| HDHP minimum deductible | 1,700 | 3,400 |
| HDHP out-of-pocket maximum | 8,500 | 17,000 |
| Health FSA salary reduction (per employee) | 3,400 | — |
| Health FSA maximum carryover | 680 | — |

The 2026 figures, from Rev. Proc. 2025-19 and 2025-32.

> “For calendar year 2026, the annual limitation on deductions under § 223(b)(2)(A) for an individual with self-only coverage under a high deductible health plan is $4,400.”

— [Rev. Proc. 2025-19, §2.01–.02](https://www.irs.gov/pub/irs-drop/rp-25-19.pdf) (PDF), 2026 HSA limits, HDHP minimums and the excepted benefit HRA

> **New for 2026.** The One Big Beautiful Bill Act widened HSA eligibility. From January 1, 2026, bronze and catastrophic plans available through an Exchange count as HSA-compatible whether or not they meet the HDHP definition; telehealth before the deductible no longer breaks eligibility; and certain direct primary care arrangements are not treated as a health plan.

> “bronze and catastrophic plans available through an Exchange are considered HSA-compatible”

— [IRS IR-2025-119 (Dec. 9, 2025); Notice 2026-5](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-on-new-tax-benefits-for-health-savings-account-participants-under-the-one-big-beautiful-bill), The One Big Beautiful Bill's HSA changes: bronze and catastrophic plans, telehealth, direct primary care

**Use case — Seeding the account.** An employer that offers an HDHP puts $1,000 into each enrollee's HSA through payroll. The employer's contribution and the employee's own count against the same limit, so a self-only enrollee can add $3,400 more in 2026. Both are excluded from wages when made through a cafeteria plan, up to the limit, and reported on the W-2 in box 12, code W.

> “A cafeteria plan, including an FSA, provides participants an opportunity to receive qualified benefits on a pre-tax basis.”

— [IRS Pub. 15-B (2026), §1 Cafeteria Plans; §2 Table 2-1](https://www.irs.gov/pub/irs-pdf/p15b.pdf) (PDF), Employer's Tax Guide to Fringe Benefits

## 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.

> “For taxable years beginning in 2026, the dollar limitation under § 125(i) on voluntary employee salary reductions for contributions to health flexible spending arrangements is $3,400.”

— [Rev. Proc. 2025-32, §4.15, §4.63](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf) (PDF), 2026 inflation adjustments: the health FSA limit and the QSEHRA maximums

**HSA**
- Pro: The employee owns it and keeps it
- Pro: Balances carry over every year
- Pro: A higher limit: $4,400 self-only for 2026
- Con: Requires HDHP coverage and no other non-HDHP coverage
- Con: No contributions once the person is entitled to Medicare
- Best for: Employees on an HDHP who want to save for later

**Health FSA**
- Pro: Works with any health plan
- Pro: Needs no HDHP
- Con: Use-or-lose beyond a carryover or grace period
- Con: Stays with the employer's plan
- Best for: Any plan, for predictable yearly costs

HSA or health FSA.

**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

- [IRC §223(a), (b)(3), (c)(1)](https://www.law.cornell.edu/uscode/text/26/223) — Health savings accounts (statute)
- [Rev. Proc. 2025-19, §2.01–.02](https://www.irs.gov/pub/irs-drop/rp-25-19.pdf) (PDF) — 2026 HSA limits, HDHP minimums and the excepted benefit HRA (irs)
- [Rev. Proc. 2025-32, §4.15, §4.63](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf) (PDF) — 2026 inflation adjustments: the health FSA limit and the QSEHRA maximums (irs)
- [IRS IR-2025-119 (Dec. 9, 2025); Notice 2026-5](https://www.irs.gov/newsroom/treasury-irs-provide-guidance-on-new-tax-benefits-for-health-savings-account-participants-under-the-one-big-beautiful-bill) — The One Big Beautiful Bill's HSA changes: bronze and catastrophic plans, telehealth, direct primary care (irs)
- [IRS Pub. 969 (2025)](https://www.irs.gov/publications/p969) — Health Savings Accounts and Other Tax-Favored Health Plans (irs)
- [IRS Pub. 15-B (2026), §1 Cafeteria Plans; §2 Table 2-1](https://www.irs.gov/pub/irs-pdf/p15b.pdf) (PDF) — Employer's Tax Guide to Fringe Benefits (irs)
- [Wikipedia, “Health savings account”](https://en.wikipedia.org/wiki/Health_savings_account) — Health savings account (reference)
- [Wikipedia, “Flexible spending account”](https://en.wikipedia.org/wiki/Flexible_spending_account) — Flexible spending account (reference)

## Read further

- https://lopifi.com/md/startups/w2-year-end-for-startups

- **Track:** [Health & benefits](https://lopifi.com/md/learn/benefits)
- **Lesson:** Lesson 4 of 10 — 10 min
- **Terms taught:** [Health savings account](https://lopifi.com/md/glossary/health-savings-account), [High-deductible health plan](https://lopifi.com/md/glossary/high-deductible-health-plan), [Health flexible spending arrangement](https://lopifi.com/md/glossary/health-flexible-spending-arrangement), [Cafeteria plan](https://lopifi.com/md/glossary/cafeteria-plan)
- **Previous:** [Section 125: pre-tax health premiums, Benefits · Lesson 3](https://lopifi.com/md/learn/section-125-pre-tax-health-premiums)
- **Next:** [HRAs: QSEHRA and ICHRA, Benefits · Lesson 5](https://lopifi.com/md/learn/qsehra-vs-ichra)
- **The course:** https://lopifi.com/md/learn