Health Flexible Spending Accounts (FSAs)

A health Flexible Spending Account (FSA) is an employer-sponsored benefit that allows eligible employees to save pre-tax dollars to pay for qualified medical expenses. Employees can elect a specific dollar amount, up to a certain limit, to set aside annually. The full annual election is generally available from the beginning of the coverage period. The employer recovers the elected amount through pre-tax payroll deductions throughout the year.

Health FSAs are typically “use-it-or-lose-it,” meaning unused funds are forfeited at the end of the plan year. To mitigate this, plan sponsors may offer one of two options:

• A “grace period” of up to 2½ months after the end of the plan year to incur new eligible expenses that may be reimbursed from remaining FSA funds.

• A carryover provision that allows participants to transfer a certain amount of unused funds into the next plan year.

Each year, the IRS sets maximum contribution limits for FSAs. Plan sponsors can choose to limit contributions to a lower amount or allow employees to contribute up to the IRS maximum.

FSA Type	2027	2026	Change
Health Care FSA - Employee Salary-Reduction Limit	Not yet announced	$3,400	—
Health Care FSA Carryover Limit	Not yet announced	$680	—
Dependent Care FSA / DCAP exclusion limit	$7,500	$7,500	—

Health Savings Accounts (HSAs)

A Health Savings Account (HSA) is a tax-advantaged savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. HSAs are owned by the individual who establishes them, and contributions can be used to pay for qualified medical expenses that occur during the year the contributions were made or at a future date. HSAs also allow the individual to earn tax-free interest or other earnings on the assets in their account.

Eligibility

To contribute to an HSA, you must be an eligible individual. An eligible individual is someone who:

• Is covered by HSA-qualifying health coverage on the first day of the month. This generally includes an HSA-qualified High Deductible Health Plan (HDHP) in group health plan situations. Beginning January 1, 2026, qualifying Bronze-Tier and Catastrophic Individual and Family Plan (IFP) market plans are also treated as HSA-compatible.
• Does not have other health coverage except what is permitted under Other health coverage in IRS Publication 969.
• Is not entitled to Medicare.
• Cannot be claimed as a dependent on someone else’s tax return.

Contributions

HSA contributions may be made on a pre-tax basis through an employer’s Section 125 cafeteria plan. Eligible individuals who make HSA contributions outside of payroll may generally claim a federal income tax deduction for those contributions. Employers, family members, or other individuals may also contribute to an eligible individual’s HSA, but total contributions from all sources cannot exceed the applicable annual IRS contribution limit.

Catch-up contributions

Anyone who is 55 or older and not enrolled in Medicare is allowed to make an additional catch-up contribution, in addition to the regular contribution limits set by the IRS.

Benefits of HSAs

HSAs offer a number of benefits, including:

• Tax-free contributions
• Tax-free withdrawals for qualified medical expenses
• Tax-free earnings on the assets in the account
• No expiration date on contributions
• Funds can be used to pay for qualified medical expenses of the account holder, their spouse, and dependents

How to Open an HSA

An HSA is established in the account holder’s name with a qualified HSA trustee or custodian, such as a bank, insurance company, or other financial institution that offers HSAs. An employer may make an HSA available to employees through a designated HSA provider, or an eligible individual may open an HSA independently with another qualified provider.

The HSA belongs to the individual who establishes it, even when the account is opened through an employer-sponsored program.

	2027	2026	2025	Difference: 2026 to 2027
HSA Contribution Limit	Self-Only: $4,500 Family: $9,000	Self-Only: $4,400 Family: $8,750	Self-Only: $4,300 Family: $8,550	Self-Only: +$100 Family: +$250
HSA Catch-up Contribution	$1,000	$1,000	$1,000	-
HDHP Minimum Deductibles	Self-Only: $1,750 Family: $3,500	Self-Only: $1,700 Family: $3,400	Self-Only: $1,650 Family: $3,300	Self-Only: +$50 Family: +$100
HDHP Maximum Out-of-Pocket Expenses Limit	Self-Only: $8,700 Family: $17,400	Self-Only: $8,500 Family: $17,000	Self-Only: $8,300 Family: $16,600	Self-Only: +$200 Family: +400
ACA Maximum Out-of-Pocket Expenses Limit	Self-Only: $12,000 Family: $24,000	Self-Only: $10,600 Family: $21,200	Self-Only: $9,200 Family: $18,400	Self-Only: +$1,400 Family: +$2,800

High Deductible Health Plans (HDHPs)

A high-deductible health plan (HDHP) is a health insurance plan that has a higher annual deductible than typical health plans. This means that you will have to pay more out of pocket for covered medical expenses before your insurance starts to pay. However, HDHPs typically have lower monthly premiums than traditional health plans.

In addition to a higher deductible, HDHPs also have a maximum limit on the total amount of money you will have to pay out of pocket for covered medical expenses in a year. This is known as the out-of-pocket maximum. Once the applicable out-of-pocket maximum is reached, the plan generally pays 100% of covered in-network expenses subject to the limit for the remainder of the plan year.

HDHPs may also provide preventive care benefits without a deductible or with a deductible that is less than the minimum annual deductible. This means that you will not have to pay as much out of pocket for preventive care services, such as checkups, immunizations, and screenings.

HDHPs can be a good option for people who are healthy and do not expect to have a lot of medical expenses. They can also be a good option for people who are on a budget and are looking for a lower-cost health insurance option.

Here are some of the pros and cons of HDHPs:

Pros:

• Lower monthly premiums
• Preventive care benefits may be covered without a deductible
• Out-of-pocket maximum protects you from catastrophic medical expenses

Cons:

• Higher deductible
• You may have to pay more out of pocket for covered medical expenses before you reach your deductible
• HDHPs may not be a good option for people who have chronic health conditions or who expect to have a lot of medical expenses