HSA vs. FSA: Which One Should You Choose for 2027?

Every fall, millions of workers open their benefits portal and meet the same puzzle. Jordan, for instance, earns a salary in the 22% federal tax bracket, and his employer offers both a health savings account, or HSA, and a flexible spending account, or FSA. The enrollment form asks him to type a dollar amount for the next year. He has no idea what to type, so he is about to leave both boxes at zero.

That zero could cost him several hundred dollars in taxes. On the other hand, a careless number could cost him money too, because one of these accounts takes back what you do not spend. In this lesson, we explain how each account works in 2027, show the tax math with real numbers and help you choose an amount you will not regret in December.

What an HSA is, and who can open one

A health savings account is a personal account for medical costs that you own, just like a bank account. Unlike most benefits, it stays yours if you change jobs or retire. However, there is an entry ticket: you can only contribute while an HSA-eligible plan covers you, usually a high-deductible health plan, or HDHP. In addition, you cannot have most other health coverage, you cannot have Medicare and nobody can claim you as a dependent, according to IRS Publication 969.

Starting in 2026, the rules also got wider. Under the One Big Beautiful Bill Act, bronze and catastrophic plans available on the Health Insurance Marketplace now count as HSA-eligible, as the IRS explains in Notice 2026-5. So if you buy your own insurance, you may qualify even without an employer plan.

Source: IRS Revenue Procedure 2026-24. Employer contributions count toward the same limit.

What a health FSA is, and its use-it-or-lose-it rule

A health FSA works differently. Only an employer can offer one, and it usually works with any health plan the company provides. You choose an amount for the year, and your employer takes it out of your paychecks before taxes. Then you use the account to pay for deductibles, copays, prescriptions, glasses and many other medical costs.

FSAs have one surprising advantage. Your full yearly amount is available from the first day of the plan year, even before you contribute it. So if you elect $2,000 and need surgery in January, you can use all $2,000 right away.

The catch is the famous use-it-or-lose-it rule. In general, money you do not spend by the end of the plan year goes back to your employer. Still, the IRS lets employers soften the rule in one of two ways, but never both:

• A carryover: up to $680 of unused 2026 money can roll into 2027.
• A grace period: you get up to two and a half extra months to spend last year’s balance.

For 2026, the most you can put into a health FSA is $3,400. At the time of writing, the IRS had not yet announced the 2027 limit, which it usually publishes in the fall, so check your enrollment materials for the final number. Also, your employer can choose a lower limit or skip both softer options entirely.

HSA vs. FSA side by side

Simplified comparison based on IRS Publication 969. Plan details vary by employer.

How much each account saves you in taxes

Both accounts give you the same first benefit. When the money comes out of your paycheck, you skip federal income tax and the 7.65% Social Security and Medicare tax. Most states also leave this money out of state income tax, although California and New Jersey still tax HSA contributions.

Let’s go back to Jordan. He pays 22% in federal tax, about 5% in state tax and 7.65% for Social Security and Medicare, so each dollar he contributes saves him about 35 cents. As a result, a $2,000 contribution saves him about $693 a year. In other words, he pays for $2,000 of medical care with roughly $1,307 of his own money.

Now suppose Jordan uses an FSA but spends only $1,300 that year. If his plan has no carryover or grace period, he loses the other $700, and his tax savings almost vanish. By contrast, a plan with a $680 carryover would cost him only $20. With an HSA, he would lose nothing: the $700 would simply stay in his account for next year.

Find your FSA amount with the calculator

How to use it: enter the medical costs you expect next year, the amount you plan to contribute and your tax rates. Next, choose your FSA rule. The chart then shows your real gain, meaning tax savings minus any money you would lose.

Look at the shape of the orange line. At first, it climbs, because every dollar you will spend saves you taxes. Then, right after your expected costs, it turns sharply down, since each extra dollar you lose costs far more than the tax it saves. The green HSA line never turns down, which is exactly the difference between the two accounts.

The HSA mistake: leaving it all in cash

Many HSA owners treat the account like a checking account for doctor bills. That works, but it skips the biggest benefit. Most HSA providers let you invest the balance in funds, and the growth is tax-free when you spend it on medical costs. Yet according to the Employee Benefit Research Institute, only 18% of HSA owners invested any of their money in 2024.

Here is why that matters. After age 65, you can withdraw HSA money for anything, paying normal income tax on non-medical spending, much like a traditional IRA. Before 65, however, a non-medical withdrawal costs income tax plus a 20% penalty. So an HSA can also become a second retirement account, as long as you keep a cash cushion for this year’s bills. To see how it fits next to a 401(k), read 401(k), IRA and Brokerage Accounts.

Can you have both an HSA and an FSA?

Usually not with a regular FSA. A general health FSA counts as other coverage, so it blocks HSA contributions, even when it belongs to your spouse and covers you. However, many employers offer a limited-purpose FSA that only pays for dental and vision costs. That version works alongside an HSA, so you can use it for braces or glasses while your HSA keeps growing.

Also, do not confuse a health FSA with a dependent care FSA. That one pays for child care or adult day care, not medical bills, and it has its own limit of $7,500 starting in 2026. You can have it with either account.

Which one fits you?

In practice, the choice often starts with your health plan, not the account. If you pick a high-deductible plan, an HSA usually makes sense. With a lower-deductible HMO or PPO, an FSA is often your only option. For help with that first step, see HMO vs. PPO.

General guidelines for education. Your plan documents decide what is allowed.

Before open enrollment closes

• List your known costs. Add up prescriptions, glasses, therapy visits and anything already scheduled.
• Check your FSA rule. Find out whether your plan offers a carryover, a grace period or neither.
• Ask about employer money. Some companies add HSA contributions, which count toward your limit.
• Look at investment options. Compare the HSA provider’s fund choices and fees.
• Write down the deadline. Your FSA amount usually stays locked for the whole year after it.

Common questions

What happens to my FSA if I leave my job?

In most cases, you lose the unused balance when your job ends, unless you continue the plan through COBRA. Your HSA, by contrast, stays yours, along with every dollar in it.

Can I change my HSA contribution during the year?

Yes. Most employers let you change it anytime through payroll. You can even add money directly before the tax filing deadline, usually in April of the next year, and deduct it on your return.

What can I buy with an HSA or FSA?

Both cover qualified medical costs, such as deductibles, copays, prescriptions, dental work and glasses. Your plan administrator keeps a full list, and IRS Publication 502 explains what counts as a medical expense.