HSA and FSA rules: eligibility, limits, and tax treatment

Eligibility rules

IRS eligibility for HSA contributions requires qualifying high-deductible health-plan coverage, subject to indexed deductible and out-of-pocket thresholds and the applicable coverage and dependent rules. FSA availability depends on an employer-sponsored plan and its enrollment rules. Self-employed workers do not enroll in an employer FSA; HSA eligibility remains subject to the published HDHP rules.

HSA tax treatment (IRS rules)

According to IRS Publication 969, HSA contributions are deductible (or excluded if made through a cafeteria plan), account earnings are not taxed while held in the account, and distributions used for qualified medical expenses are tax-free. After age 65, non-medical withdrawals are taxed as ordinary income without the 20% penalty that applies before age 65. The IRS does not impose a time limit on reimbursing qualified expenses from saved receipts, but distributions must match documented qualified expenses.

Contribution limits: 2025 and 2026

HSA limits are $4,300 for self-only coverage and $8,550 for family coverage in 2025, rising to $4,400 and $8,750 for 2026 (IRS Revenue Procedure 2025-19), with an additional $1,000 catch-up contribution allowed at age 55 and older in both years. Health-care FSA limits are $3,300 for 2025 and $3,400 for 2026, with a carryover of up to $660 (2025) or $680 (2026) into the following plan year if the employer allows it.

Dependent-care FSAs are a separate account and just saw their first increase in nearly 40 years: the One Big Beautiful Bill Act (OBBBA) raised the household limit from $5,000 to $7,500 ($3,750 if Married Filing Separately), effective January 1, 2026. For 2025 the limit is still the pre-OBBBA $5,000. Both sets of limits are adjusted annually, and married couples with two HDHP-eligible spouses can each open their own HSA but share the family contribution cap.

Qualified expenses

The list of qualified medical expenses is defined in IRS Publication 502 and includes doctor visits, prescriptions, dental and vision care, mental-health services, and medical supplies. Over-the-counter medications and menstrual products were added as qualified expenses by the CARES Act in 2020. Health-insurance premiums generally are not qualified HSA expenses except in narrow circumstances, including specified COBRA, long-term-care, and post-65 Medicare rules. Non-qualified HSA withdrawals before age 65 are generally subject to ordinary income tax and a 20% additional tax.

Account comparison (published limits and rules)

HSAs require HDHP coverage and allow balances to roll forward indefinitely; FSAs are employer-sponsored, generally use-it-or-lose-it except for limited carryover amounts the employer may permit. Self-employed workers may open an HSA with an individual HDHP but cannot enroll in an employer FSA. Contribution limits, qualified-expense definitions, and penalty rules differ by account type and are set in IRS publications each year. This page summarizes those published rules; it does not recommend one account over another for an individual filing situation.