Your benefits packet lists two accounts with near-identical acronyms — the HSA (health savings account) and the FSA (flexible spending account) — and asks you to pick an amount for each before the enrollment window closes. Both let you pay medical bills with money that is never taxed, but one is yours for life and the other expires with the plan year, so the choice deserves ten minutes of arithmetic.
Why both accounts cut your tax bill
Money you send to either account through payroll comes out of your pay before income tax and before FICA, the 7.65% Social Security and Medicare tax on wages. That lowers your taxable income, so every dollar you route through the account saves your marginal tax rate plus 7.65%, plus state income tax if your state has one. In the 12% federal bracket for 2025 that is 19.65 cents saved on every dollar; in the 22% bracket it is 29.65 cents. The catch is that the money has to be spent on care, so the accounts are for medical costs you already expect, not a place to park savings.
The HSA: three tax breaks, and the money is yours for life
An HSA stacks three tax breaks, a combination nothing else in the tax code offers:
- Money goes in untaxed — no income tax, and no FICA when it comes through payroll.
- It grows untaxed — you can invest the balance, and the gains are never taxed.
- It comes out untaxed for qualified medical expenses, at any age, with no deadline.
The account is yours. It does not reset at year-end, it moves with you when you change jobs, and you can keep adding to it for 2025 until April 15, 2026. Because the balance never expires, you can pay small bills out of pocket, leave the account invested, and pull the money out tax-free years later for the same kind of expenses — which is why many people treat a long-held HSA as a retirement account for health costs.
Who can contribute: the HDHP test
| For 2025 | Self-only coverage | Family coverage |
|---|---|---|
| Deductible of at least | $1,650 | $3,300 |
| Out-of-pocket maximum of no more than | $8,300 | $16,600 |
A plan that meets both lines is a high-deductible health plan (HDHP), and only while you are enrolled in one can you add money to an HSA. Three things end your eligibility to contribute, though the balance you already have stays yours: enrolling in Medicare, being covered by a general-purpose health FSA (yours or your spouse's), and being covered by another plan that is not an HDHP. Your plan menu says which plans qualify — choosing a plan during open enrollment shows how to price one against a low-deductible plan.
How much you can put in for 2025
| Account | Contribution for 2025 |
|---|---|
| HSA, self-only coverage | $4,300 |
| HSA, family coverage | $8,550 |
| Health FSA (salary reduction) | $3,300 |
If you are 55 or older you can add another $1,000 to the HSA for the year.
The FSA: your employer's account, spent within the year
A health FSA shares the pre-tax entry and nothing else. Only an employer can offer one, and it stays with that employer: leave the job and the unspent balance stays behind. It cannot be invested. And it is use-it-or-lose-it: what you have not spent by the end of the plan year is forfeited, except for one softener your employer can choose — either a carryover of $660 of unspent money into the next year (the 2025 figure) or a short grace period to keep spending. Ask which one your plan uses; it is in the plan document.
Two features work in the FSA's favor. The full year's election is available on day one — elect $2,000 in January and you can spend $2,000 in January, even though payroll has only deducted one month's share. And if you are on an HDHP and want both accounts, a limited-purpose FSA — one that pays only dental and vision costs — does not block your HSA contributions the way a general-purpose FSA does.
A separate dependent-care FSA pays for childcare with pre-tax money: $5,000 per household for 2025, rising to $7,500 for plan years starting in 2026. It is covered with the rest of the payroll perks in pre-tax accounts and perks.
HSA vs. FSA, side by side
| Feature | HSA | Health FSA |
|---|---|---|
| Who can open it | Anyone on a qualifying HDHP | Only through an employer that offers one |
| Who owns it | You, for life | The employer's plan |
| Year-end | Rolls over indefinitely | Forfeited, except the carryover or grace period your plan allows |
| When you change jobs | Goes with you | Stays behind |
| Can it be invested? | Yes | No |
| Tax breaks | Three: in, growth, out | Two: in, out |
| Full balance on day one? | No — only what has been deposited | Yes — the full election |
| Contribution deadline | April 15 of the following year | Set at enrollment |
What counts as a qualified medical expense
Both accounts pay for the same list, which the IRS publishes in Publication 502: doctor and hospital bills, prescriptions, dental and vision care, over-the-counter medicines, glasses and contacts, and your deductible, copays and coinsurance. Health insurance premiums are not on the list, with the HSA exceptions above (Medicare after 65) plus COBRA continuation coverage, premiums while you are receiving unemployment benefits, and long-term care insurance. Spend on anything else and you lose the tax break — and, from an HSA before 65, pay the 20% additional tax.
Where these accounts fit
Both are for expected medical costs. Neither replaces an emergency fund: FSA money can be forfeited, and HSA money used for anything but care before 65 costs you the 20% additional tax plus income tax. Size your FSA election to bills you are sure of — last year's deductible, copays and prescriptions — and treat the HSA as the account that absorbs whatever you are not sure of, because it never expires. Use the budget calculator to see what the monthly payroll deduction does to your take-home before you commit to it.