What’s the Difference Between an FSA and an HSA?
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What’s the Difference Between an FSA and an HSA?

What’s the Difference Between an FSA and an HSA?
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Updated on October 15, 2026
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There are two main types of accounts available to use for health services: flexible spending accounts (FSAs) and health savings accounts (HSAs). Both allow you to set aside money before taxes as well as withdraw money tax-free to pay for healthcare costs. But there are key differences between the two account types.

FSA

An FSA is a workplace account that you get from your employer. It lets you save pretax income to use for medical expenses. It’s more like a spending account than a savings account though: Typically, you must use the money you contribute within a year or you lose it.

How Does It Work?

During open enrollment, you decide how much money you want to put into your FSA. Your employer takes that amount out of your paycheck before taxes are deducted from your earnings. You can use the money in your FSA to pay for qualified medical expenses throughout the year. Employers can also contribute to FSAs, but they aren’t required to do so. You can use the full yearly amount from the beginning, regardless of how much you’ve paid in so far.

The big advantage of an FSA is that you don’t pay federal, Social Security, Medicare, and, in most states, state income taxes on the money you contribute and spend on medical purposes. FSAs can also be used alongside any type of employer health plan, with the exception of an HSA. If you have an HSA, you can only have a limited purpose FSA that covers expenses not covered by your health plan, such as dental and vision expenses.

A disadvantage is that, unlike with an HSA, you can’t invest or earn interest on FSA funds. Moreover, if you don’t use all the money you deposit or you leave your job before spending it, you will likely lose it.

What Can FSA Funds Be Used For?

FSA funds can be used for qualified medical expenses, including the following:

You can’t use money from an FSA to pay insurance premiums, which are the payments you make each month to keep your insurance policy active. You generally can’t use FSA money for expenses like cosmetic procedures, supplements, and gym memberships.

What’s the Max You Can Contribute to an FSA?

The amount of money that you can put into an FSA is capped. In 2026, the limit is $3,400, but your employer can set a lower limit. If your spouse is offered an FSA, they can also contribute up to $3,400. If your spouse’s employer offers an FSA, they can contribute up to $3,400 to their account too.

Even if you don’t put any money into your FSA, your employer can still contribute up to $500. However, pretax contributions from an employer that are more than $500 are restricted to a dollar-for-dollar match. That means, for example, that you would have to contribute $1,000 for your employer to be allowed to chip in that same amount.

What Happens to Unused Funds?

Typically, FSAs have a use-it-or-lose-it policy, so any money that’s left over at the end of the plan year is gone. That’s why it’s important that you only contribute the amount that you think you will spend.

However, there are exceptions. Some employers offer grace periods of up to two and a half months to use the money in the account. Others let employees carry over a portion of the unused money. An employer can offer one or the other, but not both. The Internal Revenue Service (IRS) determines the maximum amount that can be carried over each year. Up to $680 can be carried over from 2026 to 2027.

Who Is an FSA Best For?

An FSA might be a good option if you meet any of these conditions:

  • Have an employer that offers this benefit
  • Want to save pretax income
  • Can somewhat predict what your health costs will be
  • Have regular income
  • Can plan ahead

HSA

An HSA allows you to pay for medical expenses with tax-free funds. An HSA is an option for people who have a qualified high-deductible health plan or, since January 1, 2026, a bronze or catastrophic plan. The contributions you make to an HSA don’t have to be used within a particular time period; they are yours to keep indefinitely.

How Does It Work?

You put money into an HSA via paycheck deductions or a lump deposit. You can use this money for eligible health expenses. Your employer, family members, and anyone else can also add money to the account.

With an HSA, the funds you contribute are tax-free and can grow over time. Certain amounts may be invested, and your interest and earnings are tax-free, if used on medical expenses.

Another advantage is that there’s no use-it-or-lose-it policy with an HSA. The money simply rolls over to the next year.

One potential drawback of an HSA is that it can only be used with a high-deductible health plan. With this plan, you have to pay higher out-of-pocket costs before your coverage kicks in.

What Can HSA Funds Be Used For?

HSA funds can go toward many qualified medical expenses, as defined by the IRS. Typically, you can’t use this money to pay insurance premiums, but there are some exceptions, such as paying for COBRA premiums while receiving unemployment benefits.

Before you turn 65, if you withdraw HSA funds for nonmedical expenses, the withdrawals are taxed as income; you will also have to pay an additional 20 percent tax. Once you turn 65, you can use the money in your HSA for anything, not just medical expenses. However, if you use the money to pay for purchases that aren’t medical, it counts as taxable income on your tax return.

Here are some common medical expenses that you can pay for with HSA funds:

  • Doctor’s visits, hospital stays, and copays
  • Deductibles and coinsurance
  • Medications and medical supplies
  • Eye exams and glasses
  • Dental work
  • Mental health services

What’s the Max You Can Contribute to an HSA?

There’s a limit to how much an individual or family can contribute to an HSA. For 2027, the maximum contribution amount will be $4,500 for individuals or $9,000 for family coverage. People age 55 and older can make an additional contribution of $1,000 to catch up on their savings.

While there are restrictions on how much you can add to your account each year, there’s no limit on how much you can save with an HSA over the long term.

What Happens to Unused Funds?

Unused HSA funds roll over from year to year. You don’t lose any of the savings you don’t use. In fact, the money stays in your account even if you change jobs, switch health insurance policies, or retire.

However, six months before you retire or enroll in Medicare, you must stop contributing to your HSA. You can still use any money in your account to pay medical costs that Medicare doesn’t cover.

Who Is an HSA Best For?

An HSA may be a good option if you meet these conditions:

  • Have a high-deductible health plan
  • Want to save tax-free money
  • Like the idea of your money growing over time
  • Want to save for future healthcare costs

    How Do I Know Which Plan Is Right for Me?

    You can’t contribute to an HSA while covered by a general-purpose health FSA. But you can pair an HSA with a limited-purpose health FSA, like one covering dental or vision. The plan that’s right for you depends on your situation, preferences, and goals.

    An HSA may be a better fit for someone who wants their money to grow and may not use their funds in a year’s time. If you can predict your estimated expenses and know that you are going to use the money, an FSA could be a good option.

    Keep in mind, you need a high-deductible health plan, a bronze plan, or a catastrophic plan to qualify for an HSA. An HSA (and a high-deductible plan) can be funded on your own, unlike an FSA, which must be offered by an employer.

    Resources We Trust

    EDITORIAL SOURCES
    Everyday Health follows strict sourcing guidelines to ensure the accuracy of its content, outlined in our editorial policy. We use only trustworthy sources, including peer-reviewed studies, board-certified medical experts, patients with lived experience, and information from top institutions.
    Resources
    1. What Are Health Savings Account-Eligible Plans? HealthCare.gov.
    2. Using a Flexible Spending Account (FSA). HealthCare.gov.
    3. What Is a Flexible Spending Account (FSA)? HealthInsurance.org.
    4. Limited Expense Health Care FSA. FSAFeds.gov.
    5. What Is the Use or Lose Rule? U.S. Office of Personnel Management.
    6. Eligible Health Care FSA (HC FSA) Expenses. U.S. Office of Personnel Management.
    7. Health Savings Accounts Work With Many Marketplace Plans. HealthCare.gov.
    8. Health Savings Account (HSA). HealthInsurance.org.
    9. How Health Savings Account-Eligible Plans Work. HealthCare.gov.
    10. Publication 502 (2025), Medical and Dental Expenses. IRS. April 30, 2026.
    11. Differences Between HSA, HRAs, and FSAs. UnitedHealthcare.
    12. Flexible Spending Account vs. Health Savings Account. The University of Utah.
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