HSA vs. FSA: Which Offers the Best Tax Advantages?

FSAs and HSAs are tax-advantaged accounts that offer savings on health costs. Each works a little differently, with pros and cons, and has varying eligibility requirements.

Below, we’ll break down the difference between FSAs vs. HSAs and their respective tax advantages so you can make the right choice for you and your family.

What is an FSA?

A Flexible Spending Account (FSA), also called a flexible spending arrangement, is an employer-sponsored benefit that allows employees to contribute part of their paycheck to an account pre-tax to use for qualified medical expenses.

The contribution limit for individuals in 2026 is $3,400. The maximum you can rollover is $680.

Contributions to FSAs are not subject to federal income tax, Social Security tax, or Medicare tax.

Pros of FSAs

Tax-advantaged way to save money for medical costs
Employers may choose to contribute
Contributions don’t need to be reported on your tax return

Cons of FSAs

FSAs are typically use-it or lose-it, meaning funds do not carry over at the end of year*
You can’t contribute as much to an FSA as an HSA
FSAs are not portable, meaning you can’t take it with you when you change jobs

*For FSAs that permit the carryover of unused amounts, the maximum 2025 carryover amount to 2026 is $660. So if you have an FSA, plan to use those funds by the end of the year.

What is an HSA?

Health savings accounts (HSAs) are tax-advantaged savings accounts that allow you to contribute money pre-tax to use toward qualified medical expenses. By using untaxed dollars in to pay for medical expenses like deductibles, you can lower your out-of-pocket health care costs.

HSAs have triple tax benefits:

Tax-free contributions
Tax-free capital gains
Tax-free withdrawals on qualified medical costs

How much you can contribute depends on your age and whether your plan covers just you or also your family.

For 2026, the contribution limits are:

$4,400 for self-only coverage
$8,750 for family coverage

Those age 55 and older can also make an additional $1,000 catch-up contribution.

If your employer offers contributions, your contributions together cannot exceed the max limits.

Pros of HSAs

Tax-advantaged way to save money for medical costs
You can invest your HSA funds into potentially high-return assets
Your money rolls over to the next year
HSAs are portable, meaning you can bring your account with you when you change jobs
Your employer can contribute to your HSA

Cons of HSAs

You must have a high-deductible health plan (HDHP) to qualify for an HSA
Some plans may have restrictions on if/where you can invest your funds
If you use the funds for non-qualified expenses, you will owe income tax plus a 20% penalty

What can you pay for with an HSA and FSA?

An expense that qualifies for the medical and dental expenses tax deduction generally also falls under qualified medical expenses for an HSA and FSA.

Typical expenses covered under both HSAs and FSAs include:

Prescriptions
Copays
Deductible payments
Dental care
Eyecare
Acupuncture
Chiropractic
Infertility treatments
Medical supplies like eyeglasses, COVID test kits, PPE, feminine hygiene products, etc.

HSA vs. FSA: What’s the difference?

Here’s a quick breakdown of the differences between an HSA and an FSA.

	HSA	FSA
Employer can contribute to account	Yes. Employers commonly offer contributions.	Yes, but less common.
Account moves with your job	Yes. Your HSA can follow you as your employment changes.	No. Unless you are eligible for FSA continuation thru COBRA
Pre-tax contributions allowed	Yes	Yes
Can invest in stocks for growth	Yes	No
Need high-deductible health plan to qualify	Yes	No
Can rollover year-to-year	Yes	No, unless your employer offers a rollover or grace period
Required to report on tax return	Yes	No
Impact on taxes	Contributions are tax-deductible or can be deducted pretax from your paycheck. Distributions are tax-free when used for qualifying medical expenses.	Contributions are pretax. Distributions are tax-free when used for qualifying medical expenses.

HSA vs. FSA: Which has the best tax advantages?

Both FSAs and HSAs have powerful tax benefits. Which one you choose will depend on your situation and what plans you qualify for.

HSAs generally have bigger tax advantages (including higher contribution limits). However, you can only use an HSA if you have a qualifying health plan.

If you don’t have a qualifying HDHP, an employer-sponsored FSA is a great option. Just make sure you track your expenses carefully and use up the funds in the account before the end of the year.

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Frequently Asked Questions

What’s the main difference between an HSA and an FSA?

An HSA (Health Savings Account) is only available if you have a high‑deductible health plan and lets you roll over unused funds year to year. An FSA (Flexible Spending Account) is available with most employer health plans but typically has a “use‑it‑or‑lose‑it” rule. Both accounts offer tax savings, but HSAs generally provide more long‑term advantages.

Which account offers better tax benefits: an HSA or an FSA?

HSAs usually offer stronger tax advantages because contributions are tax‑deductible, funds grow tax‑free, and withdrawals for qualified medical expenses are also tax‑free. FSAs still offer valuable tax savings, but the annual forfeiture risk makes them less flexible.

Can I have both an HSA and an FSA at the same time?

You can only have both if your FSA is a limited‑purpose FSA, which covers dental and vision expenses only. A standard FSA would disqualify you from contributing to an HSA.

Do HSA funds roll over each year?

Yes. One of the biggest benefits of an HSA is that your balance rolls over indefinitely. You can save and invest the funds for future medical expenses, even into retirement.

Do FSA funds expire at the end of the year?

Most FSAs follow a “use‑it‑or‑lose‑it” rule, meaning unused funds may be forfeited. Some employers offer a small rollover amount or a grace period, but it varies by plan.

What expenses can I pay for with an HSA or FSA?

Both accounts can be used for qualified medical expenses like copays, prescriptions, medical supplies, and certain over‑the‑counter items. HSAs also allow tax‑free withdrawals for some long‑term care and Medicare expenses later in life.

Who is eligible to open an HSA?

You must be enrolled in a high‑deductible health plan (HDHP), not be enrolled in Medicare, and not be claimed as a dependent on someone else’s tax return.

Can I invest the money in my HSA?

Yes. Once your HSA balance reaches your provider’s minimum threshold, you can invest the funds in mutual funds or other investment options. This is a major reason HSAs are considered a powerful long‑term tax‑advantaged tool.