IRS Pub. 969: HSAs, FSAs, HRAs, and Archer MSAs

IRS Publication 969 explains the federal tax rules for the four main tax-favored health accounts: Health Savings Accounts (HSAs), Health Flexible Spending Arrangements (FSAs), Health Reimbursement Arrangements (HRAs), and Archer Medical Savings Accounts. It tells you who can contribute, how much, what the money can pay for tax-free, and what penalties apply when the rules are broken. For 2026, the HSA contribution ceiling is $4,400 for self-only coverage and $8,750 for family coverage, and the publication reflects several changes from the One, Big, Beautiful Bill, including HSA eligibility for bronze and catastrophic Exchange plans and for people enrolled in direct primary care.¹

Who Can Contribute to an HSA

To be HSA-eligible, you must be covered by a qualifying High Deductible Health Plan (HDHP), have no other health coverage that pays for general medical expenses before the HDHP deductible is met, not be enrolled in any part of Medicare, and not be claimed as a dependent on someone else’s return.²

For 2026, an HDHP must have a minimum annual deductible of $1,700 for self-only coverage or $3,400 for family coverage, with out-of-pocket costs (deductibles, copays, and coinsurance, but not premiums) capped at $8,500 and $17,000 respectively.¹ HDHPs can pay for preventive care in full before you meet the deductible without losing HDHP status. Under Notice 2024-75, this includes over-the-counter oral contraceptives, emergency contraceptives, and male condoms.³

The Other-Coverage Rule

This is where people most often lose HSA eligibility without realizing it. Coverage under a spouse’s employer plan that pays general medical expenses disqualifies you. So does a general-purpose FSA or HRA, whether it’s yours or your spouse’s. Dental, vision, long-term care, disease-specific, workers’ compensation, and disability coverage are all fine. A limited-purpose FSA or HRA (restricted to dental, vision, or preventive care) and a post-deductible HRA (paying only after you meet the HDHP deductible) also preserve eligibility.

The Medicare Trap

Enrollment in Medicare Part A, B, or D disqualifies you from contributing to an HSA starting the first day of the month coverage takes effect, even if you’re still working and enrolled in an employer HDHP.²

If you apply for Social Security retirement benefits after turning 65, Medicare Part A is automatically backdated up to six months (but never before your 65th birthday month). That backdating retroactively disqualifies HSA contributions made during those months. Someone who turned 65 in September and applies for Social Security the following March will find Part A backdated to September, turning any HSA contributions during that window into excess contributions.

Spousal Rules

When a family HDHP covers both spouses, each can have a separate HSA, but combined contributions can’t exceed the family limit. If one spouse has non-HDHP coverage of their own, the other spouse, if covered only by the family HDHP, is limited to the self-only contribution amount. Eligibility is determined month by month, so losing HDHP coverage midyear generally prorates your contribution limit.

What Changed for 2026

Two eligibility expansions took effect January 1, 2026. Bronze-level and catastrophic plans are now treated as HSA-compatible HDHPs even if they don’t hit the standard deductible and out-of-pocket thresholds, and they don’t need to be purchased through an Exchange to qualify.⁴ Enrollment in a qualifying direct primary care arrangement also no longer disqualifies you, and HSA funds can now be used tax-free to pay periodic DPC fees.

Contribution Limits, Deadlines, and Excess Amounts

The 2026 annual HSA contribution limits are $4,400 for self-only HDHP coverage and $8,750 for family coverage.¹ These caps cover contributions from every source combined: yours, your employer’s, and anyone else contributing on your behalf. Employer contributions are excluded from gross income and aren’t subject to Social Security or Medicare taxes. Your own contributions are an above-the-line deduction on Form 1040, so you don’t need to itemize.²

Account holders 55 or older who aren’t yet enrolled in Medicare can add a $1,000 catch-up contribution. That amount is fixed by statute and doesn’t index for inflation.² When both spouses are 55 or older and each is eligible, both can make catch-up contributions, and under the One, Big, Beautiful Bill they can now be deposited into the same HSA rather than requiring separate accounts.

The Last-Month Rule

If you’re HSA-eligible on December 1, the last-month rule lets you contribute the full annual amount as if you’d been eligible all year. You have to keep HDHP coverage through a 13-month testing period running from that December 1 through December 31 of the following year. Drop coverage during the testing period and the excess gets added back to your gross income, plus a 10% additional tax.⁵

Deadline and Excess Contributions

You have until the federal filing deadline, generally April 15, to make HSA contributions for the prior year. Filing extensions don’t extend this deadline. Deposits made between January 1 and April 15 must be specifically designated as prior-year contributions.

Excess contributions (plus earnings on them) must be removed by the tax filing deadline, including extensions, or a 6% excise tax applies for every year the excess remains in the account.⁶ Earnings on withdrawn excess amounts get included in gross income for the year of the withdrawal. Contributions and deductions are reported on Form 8889 attached to your Form 1040; the excise tax goes on Form 5329.⁷

How HSA Distributions Are Taxed

Distributions are tax-free when spent on qualified medical expenses that weren’t reimbursed by insurance or claimed as an itemized deduction, provided the expense was incurred after the HSA was established. There’s no deadline for reimbursing yourself. If you pay out of pocket now, you can withdraw from the HSA years later to cover that expense, as long as you keep the receipts.

Distributions used for anything else are included in gross income and hit with an additional 20% tax.² Three situations waive the 20% penalty, though the income tax still applies: reaching age 65, meeting the federal definition of permanent and total disability, and distributions from a deceased owner’s account.

HSA funds roll over indefinitely and the account is portable across employers. You keep the balance if you switch jobs, lose HDHP coverage, or retire. Your custodian reports distributions on Form 1099-SA, and you reconcile them on Form 8889.⁸ If you can’t document that a distribution went to a qualified expense, the IRS may treat the entire amount as taxable and subject to the penalty.⁷

What Counts as a Qualified Medical Expense

HSA-qualified expenses use the same definition as the medical expense itemized deduction under Section 213: amounts paid for the diagnosis, treatment, and prevention of disease, transportation essential to medical care, and qualified long-term care services.⁹ Since the CARES Act, over-the-counter drugs and medicines no longer require a prescription, and menstrual care products are permanently eligible across HSAs, FSAs, and HRAs.²

Health insurance premiums generally are not qualified, with specific exceptions:

COBRA continuation coverage
Health coverage while receiving unemployment compensation
Long-term care insurance, up to age-based annual limits (for a taxpayer aged 61 to 70, the 2026 limit is $4,960)
Medicare Part A, B, D, and Medicare HMO premiums once you are 65 or older
Direct primary care fees, new for 2026

When the Owner Dies

If your spouse is the named beneficiary, the account becomes your spouse’s HSA and keeps its tax status. Any other beneficiary loses the shelter: the HSA stops being an HSA on the date of death, and the account’s fair market value is included in that beneficiary’s gross income for the year, reduced by any qualified medical expenses of the deceased owner that the beneficiary pays within one year of death.

The Prohibited Transaction Trap

HSAs fall under the prohibited transaction rules of Section 4975.¹⁰ If one occurs, the HSA loses its tax-exempt status as of January 1 of that year. The entire balance is treated as distributed, included in gross income, and potentially subject to the 20% additional tax.

The most common way this happens: your HSA debit card processes a transaction that exceeds the account balance and the custodian covers the difference. That overdraft is a loan from the HSA to you, which counts as a prohibited extension of credit. The result is the whole account being disqualified, not just the overdrawn amount.

Flexible Spending Arrangements

Health FSAs use pre-tax salary reductions to pay for qualified medical expenses. For 2026, the maximum employee salary reduction is $3,400.¹¹ Employer contributions don’t count against that cap.

The main difference from an HSA is use-it-or-lose-it. Unspent balances are generally forfeited at plan year end. Employers can offer one of two relief options, but not both: a grace period of up to two and a half months after the plan year to incur new expenses, or a carryover of up to $680 into the next plan year.¹¹ A general-purpose health FSA disqualifies you from HSA contributions; only a limited-purpose FSA (dental, vision, or preventive care) preserves HSA eligibility.

Dependent care FSAs are a separate, pre-tax account for care of children under 13 or dependents who can’t care for themselves. The maximum is $7,500 per household, $3,750 if married filing separately.¹² Use-it-or-lose-it applies, but participation does not affect HSA eligibility.

Health Reimbursement Arrangements

HRAs are funded entirely by employers; employees can’t contribute through salary reduction. The employer sets a reimbursement allowance for qualified medical expenses, and funds are typically notional, paid only when claims come in. A general-purpose HRA disqualifies you from HSA contributions. Limited-purpose HRAs and post-deductible HRAs are HSA-compatible.

ICHRA

The Individual Coverage HRA, available since 2020, lets employers of any size reimburse employees tax-free for individual health insurance premiums and qualified medical expenses. There’s no federal cap on the reimbursement amount. Employers create classes of eligible employees and set limits by class; employees buy individual coverage and submit claims. An ICHRA that reimburses only premiums is HSA-compatible; one that also reimburses general medical expenses will disqualify HSA contributions unless it’s structured as limited-purpose or post-deductible.

QSEHRA

The Qualified Small Employer HRA is for employers with fewer than 50 full-time employees who don’t offer a group health plan. It has annual caps: for 2026, $6,450 for self-only coverage and $13,100 for family coverage, prorated for employees who become eligible midyear. Depending on structure, a QSEHRA that reimburses general medical expenses before the HDHP deductible can function as disqualifying coverage for HSA purposes.

Archer MSAs and State Treatment

Publication 969 still covers Archer MSAs, but they’ve been closed to most new enrollments since 2007. Only individuals who were active participants before 2008, or who later enrolled through an Archer MSA-participating employer, can still contribute.¹³ Existing accounts follow rules similar to HSAs, though the underlying HDHP thresholds differ.

One last thing the federal publication doesn’t tell you: state conformity varies. Most states follow the federal treatment, giving HSAs a triple tax advantage of deductible contributions, tax-free growth, and tax-free qualified distributions. California and New Jersey do not conform. In those states, HSA contributions aren’t deductible on the state return and investment earnings inside the account are subject to state income tax. The federal benefits still work; the state-level piece doesn’t.

1
Internal Revenue Service. Rev. Proc. 2025-19
2
Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
3
Internal Revenue Service. Notice 2024-75
4
Internal Revenue Service. Treasury, IRS Provide Guidance on New Tax Benefits for Health Savings Account Participants Under the One, Big, Beautiful Bill
5
Internal Revenue Service. Publication 969 – Health Savings Accounts and Other Tax-Favored Health Plans
6
Internal Revenue Service. Form 5329
7
Internal Revenue Service. About Form 8889
8
Internal Revenue Service. Instructions for Forms 1099-SA and 5498-SA
9
Office of the Law Revision Counsel. 26 USC 213 – Medical, Dental, Etc., Expenses
10
Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions
11
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
12
Office of the Law Revision Counsel. 26 USC 129 – Dependent Care Assistance Programs
13
Internal Revenue Service. Instructions for Form 8853