What Is an FSA? How It Works and How It Compares to an HSA

On this page

• How a health FSA works
• FSA limits for 2026 and 2027
• Use it or lose it: carryovers and grace periods
• Your full amount is available on day one
• What you can buy with an FSA
• Dependent care FSAs
• Limited-purpose FSAs if you have an HSA
• What happens if you leave your job
• FSA vs. HSA
• Frequently asked questions

How a health FSA works

You pick how much to put in for the year when you sign up through your employer. That amount is split across your paychecks and taken out before taxes, so you save roughly what you’d have paid in tax on it. Some employers add money too, though they don’t have to.

You then use the account to pay for eligible costs for yourself, your spouse, the dependents you claim on your tax return and your children under 27. That includes your deductible, copays, coinsurance and prescriptions. An FSA can’t pay your health insurance premiums or long-term care.

An FSA belongs to your employer’s benefits package, so you can’t open one on your own. The IRS says self-employed people aren’t eligible, and HealthCare.gov says you can’t use an FSA with a Marketplace plan. If you buy your own coverage, the tax-free option is an HSA paired with an HSA-eligible plan. See health insurance for the self-employed for other ways to cut your costs.

FSA limits for 2026 and 2027

Limit	2026	2027
Health FSA, per employee	$3,400	Not announced yet
Carryover into the next year, if your plan allows it	$680	Not announced yet
Dependent care FSA, per household	$7,500	$7,500

The IRS usually announces the next year’s health FSA limits in the fall. The 2026 figures came out on October 9, 2025. As of October 24, 2026, the IRS hadn’t released the 2027 amounts, so check your enrollment materials before you choose an amount.

Use it or lose it: carryovers and grace periods

FSAs are generally use-it-or-lose-it accounts. Money left at the end of the plan year goes back to the plan, with two possible exceptions your employer can choose:

• Carryover: You keep up to $680 of unused 2026 money for use in 2027. Anything above that is forfeited.
• Grace period: You get up to 2 1/2 extra months after the plan year ends to spend the money. For a calendar-year plan, that runs to March 15.

Your employer can offer one of these or neither, but not both. To avoid losing money, base your election on costs you can predict, like regular prescriptions, glasses or planned dental work.

Your full amount is available on day one

Under the IRS uniform coverage rule, you must be able to get reimbursed up to your full yearly election at any point in the plan year, no matter how much has come out of your pay so far.

Say you elect $2,400 for the year, which works out to $200 a month. If you need $1,500 of dental work in February, the plan has to cover the whole $1,500, even though only $400 has been taken from your paychecks.

What you can buy with an FSA

Your plan decides exactly what it covers, but eligible costs generally follow the medical and dental expenses the IRS lists in Publication 502. Common examples:

• Deductibles, copays and coinsurance
• Prescription drugs and insulin
• Glasses and contact lenses needed for medical reasons, and dental treatment
• Hearing aids and batteries, crutches and bandages
• Breast pumps and lactation supplies
• Acupuncture, chiropractic care and therapy received as medical treatment

Since 2020, over-the-counter medicines can be paid from an FSA without a prescription, and so can menstrual products such as tampons, pads and cups. Keep your receipts in case the plan asks for proof. Cosmetic surgery and gym memberships generally don’t qualify.

Dependent care FSAs

A dependent care FSA is a separate account for care costs, not medical bills. It pays for care for a child under 13, or for a spouse or dependent who can’t care for themselves, so that you (and your spouse, if you file jointly) can work or look for work.

The 2025 tax law raised the limit to $7,500 per household starting in 2026, or $3,750 if you’re married and file separately. Before that it was $5,000.

Limited-purpose FSAs if you have an HSA

A regular health FSA and an HSA don’t mix. If your FSA can pay general medical costs, you generally can’t contribute to an HSA, even if you have an HSA-eligible plan.

Some employers offer a limited-purpose FSA for this reason. It pays only for things like dental and vision care, plus preventive care, so you can keep contributing to your HSA while using the FSA for those costs.

What happens if you leave your job

Your FSA usually ends when your job does. You can still submit claims for costs you had before your last day, as long as you meet the plan’s deadline. Because of the uniform coverage rule, the plan has to pay those claims up to your full yearly election, even if you hadn’t paid that much in yet.

Costs you have after you leave aren’t covered unless the FSA is offered under COBRA and you sign up for it. Whatever is left unspent is forfeited. An FSA doesn’t move with you to a new employer.

FSA vs. HSA

Feature	Health FSA	HSA
Who can have one	Employees whose employer offers it	People with an HSA-eligible plan and no other disqualifying coverage, including the self-employed
Health plan needed	No high-deductible plan required	An HSA-eligible plan; since 2026 that includes bronze and catastrophic Marketplace plans
2026 limit	$3,400	$4,400 self-only, $8,750 family
2027 limit	Not announced yet	$4,500 self-only, $9,000 family
Unused money	Lost, except a carryover of up to $680 or a grace period	Carries over every year
If you change jobs	Usually forfeited	Stays with you

An FSA suits costs you know are coming this year. An HSA suits people who want savings they keep from year to year, and it’s the only one of the two you can pair with a plan you buy yourself. Compare bronze and other metal levels if you want an HSA-eligible plan.

Buying your own coverage? Compare plans by ZIP code, including HSA-eligible bronze plans.

Frequently asked questions

Can I have an FSA if I’m self-employed?

No. The IRS says self-employed people aren’t eligible for FSAs. If you buy an HSA-eligible plan, you can open an HSA instead.

What is the FSA limit for 2027?

The IRS hadn’t announced it as of October 24, 2026. It usually releases the figures in the fall. For 2026 the limit is $3,400.

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

Usually only if the FSA is limited-purpose, meaning it pays for things like dental and vision care rather than general medical costs. A regular health FSA generally stops you from contributing to an HSA.

Do I lose my FSA money if I quit?

Usually, yes, for anything you don’t spend on costs from before your last day. You can still file claims for those earlier costs by the plan’s deadline.

This article is general information, not tax or legal advice. FSA rules, including whether you get a carryover or grace period, depend on your employer’s plan. Last reviewed October 2026.