Open Enrollment Is Underway: How Your HSA and FSA Choices Affect Your Taxes
For most employees, open enrollment happens in November, and the elections you make now will shape your 2027 taxes. One of the biggest decisions is whether to choose a Health Savings Account, a Flexible Spending Account, or neither. Here is what each one does to your tax picture.
The Health Savings Account: The Triple Tax Advantage
An HSA is available if you are enrolled in a qualifying high-deductible health plan. Contributions are tax-deductible, or pre-tax if made through payroll. Growth inside the account is tax-free, and withdrawals for qualified medical expenses are tax-free too. Deductible going in, tax-free growth, and tax-free coming out is a combination you won’t find in most other accounts. Unlike an FSA, HSA funds roll over from year to year, and the account belongs to you even if you change employers.
The Flexible Spending Account: Immediate Tax Savings, Different Rules
An FSA also allows pre-tax contributions, which lowers your taxable income. The funds generally must be used within the plan year. Depending on your employer’s plan, you may get a limited carryover or a grace period, but a health FSA plan can offer one or the other, not both.
A health FSA can be offered with any type of health coverage, but there is an important catch: a general-purpose health FSA generally makes you ineligible to contribute to an HSA, and that includes a spouse’s general-purpose FSA. A limited-purpose FSA, which is restricted to dental and vision, can be paired with an HSA. A dependent care FSA is a separate option that lets you set aside pre-tax dollars for qualifying child or dependent care. It does not allow a carryover, so plan your amount carefully.
Which One Is Right for You
If you are eligible for an HSA and can manage the higher deductible that comes with a qualifying plan, the HSA is often the stronger long-term tax tool. Unused funds keep growing and can later help cover medical costs in retirement. If your plan does not qualify, or you expect a predictable amount of medical expense next year, an FSA can still meaningfully reduce your taxable income. Keep in mind that FSA elections generally can’t be changed mid-year unless you have a qualifying life event, so enrollment windows matter.
If you would like help thinking through the numbers before your enrollment deadline, contact Denise Stubbs CPA.
This blog post is provided for educational purposes only and does not constitute personalized financial, tax, or investment advice. Tax laws are complex, change frequently, and vary based on individual circumstances. Before implementing any strategies discussed, please consult with qualified financial advisors, tax professionals, or CPAs who can assess your specific situation. This content should not be relied upon as a substitute for professional consultation.
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