IRS Publication 969: HSAs, FSAs, HRAs, and Archer MSAs

IRS Publication 969 is the federal government’s consolidated rulebook for Health Savings Accounts, Flexible Spending Arrangements, Health Reimbursement Arrangements, and the legacy Archer Medical Savings Account program. It tells you who qualifies for each account, how much you can put in, what you can spend the money on tax-free, and what it costs when the rules get broken. For 2026, the headline HSA contribution ceilings are $4,400 for self-only coverage and $8,750 for family coverage, with updated thresholds for qualifying high-deductible health plans and a $3,400 cap on health FSA salary reductions.

Who Can Contribute to an HSA

To open and fund a Health Savings Account, you need coverage under a qualifying High Deductible Health Plan. That alone is not enough. You also cannot be claimed as a dependent on someone else’s tax return, and you cannot be enrolled in Medicare, including Part A. Coverage under a general-purpose FSA or HRA that pays for broad medical expenses will also disqualify you, because those plans effectively give you non-HDHP benefits that undercut the high-deductible requirement.¹

There is an important exception for limited-purpose arrangements. You can hold an HSA alongside a limited-purpose health FSA or HRA that covers only dental, vision, and preventive care. Because those plans do not reimburse broad medical costs, the IRS does not treat them as disqualifying coverage.¹

Eligibility is measured month by month. You must be covered under the HDHP on the first day of a given month to make contributions for that month. If you gain or lose HDHP coverage midyear, your annual contribution limit is prorated based on how many months you qualified.

HDHP Requirements for 2026

A health plan counts as a High Deductible Health Plan only if it meets specific deductible floors and out-of-pocket ceilings the IRS sets each year. For 2026:

Minimum annual deductible: $1,700 for self-only coverage or $3,400 for family coverage.
Maximum annual out-of-pocket expenses: $8,500 for self-only coverage or $17,000 for family coverage.

The out-of-pocket maximum includes deductibles, copayments, and coinsurance for in-network services. Premiums do not count toward that cap.²

If your plan’s deductible falls below the minimum or the out-of-pocket limit exceeds the maximum, it does not qualify as an HDHP and you cannot make HSA contributions while enrolled in it. These thresholds move every year for inflation, so a plan that qualified last year might not qualify this year if the terms changed.

HSA Contribution Limits for 2026

Your annual contribution ceiling depends on the type of HDHP coverage you carry:

Self-only coverage: $4,400
Family coverage: $8,750

Those caps include every dollar from every source. If your employer contributes $1,500 to your HSA and you have self-only coverage, you can add no more than $2,900 yourself.²

Catch-Up Contributions

If you are 55 or older by the end of the tax year and not enrolled in Medicare, you can contribute an extra $1,000 on top of the standard limit. This catch-up amount is fixed by statute and does not adjust for inflation. When both spouses are 55 or older and share family HDHP coverage, each can make the $1,000 catch-up contribution, but each spouse must deposit it into a separate HSA in their own name. The $8,750 family limit must be divided between the two spouses for their regular contributions.²

The Last-Month Rule

Normally, your contribution limit is prorated by the months you had HDHP coverage. The last-month rule overrides that proration. If you are an eligible individual on the first day of the last month of the tax year (December 1 for calendar-year taxpayers), you are treated as though you were eligible for the entire year. That lets you contribute the full annual amount even if you only enrolled in the HDHP partway through the year.³

The catch is the testing period. You must remain an eligible individual through December 31 of the following year. If you drop your HDHP coverage or gain disqualifying coverage during that window, the extra contributions you were only able to make because of the last-month rule get added back to your gross income and hit with a 10% penalty on top of regular income tax. The only exceptions are if you become disabled or die during the testing period.³

Contribution Deadline

You can make HSA contributions for a given tax year up until the tax filing deadline, typically April 15 of the following year. A contribution made in February 2027, for example, can be designated as a 2026 contribution. That gives you time to assess your final medical spending before you file.

How HSA Distributions Are Taxed

HSAs offer a triple tax benefit. Contributions reduce your taxable income, investment growth inside the account is not taxed, and withdrawals spent on qualified medical expenses come out entirely tax-free.

A qualified medical expense is defined under Internal Revenue Code Section 213 and includes doctor visits, prescription medications, dental work, vision care, and mental health services, among other costs. The expense must not be reimbursed by insurance, and it must have been incurred after your HSA was established.⁴

Penalties for Non-Qualified Withdrawals

If you withdraw money for something other than a qualified medical expense, the distribution is added to your gross income and taxed at your ordinary rate. On top of that, a 20% additional tax applies if you are under age 65 at the time of the withdrawal.

Once you turn 65, the 20% penalty disappears. Non-qualified withdrawals are still taxed as ordinary income, but at that point the HSA essentially works like a traditional IRA for non-medical spending. Distributions made after the account holder becomes disabled are also exempt from the additional 20% tax.

HSA Reporting Requirements

All HSA activity flows through Form 8889, which you file with your Form 1040. Part I covers contributions from you and your employer and produces your HSA deduction. Part II covers distributions, separating qualified medical spending from the taxable portion and calculating any 20% additional tax.⁵

Your HSA custodian sends two informational forms. Form 5498-SA reports total contributions made during the calendar year.⁶ Form 1099-SA reports total distributions.⁷

The IRS does not require you to attach receipts when you file, but you are responsible for proving that every distribution was used for a qualified medical expense if audited. Keep receipts indefinitely. Many HSA holders save money now and reimburse themselves years later for expenses already paid out of pocket. That is perfectly legal as long as the expense was incurred after the HSA was established and you have the receipts when the IRS comes asking.

Fixing Excess HSA Contributions

If total contributions exceed your annual limit, the overage is treated as an excess contribution and taxed at 6% for every year it remains in the account.⁸ The 6% excise tax hits annually until you fix the problem.

The simplest fix is to withdraw the excess amount, plus any earnings on it, before the tax filing deadline for the year the excess occurred, including extensions. If you pull the money out by then, the excess is treated as though it was never contributed, and you avoid the 6% tax entirely. If you miss that deadline, you can still eliminate the excess by under-contributing in a future year so the surplus is absorbed. You report the excise tax on Form 5329.⁹

What Happens to Your HSA When You Die

The tax treatment of an inherited HSA depends on who inherits it. If your designated beneficiary is your spouse, the account simply becomes your spouse’s HSA. Your spouse takes over as the account holder and can use the funds for their own qualified medical expenses with no income tax and no penalties.¹⁰

A non-spouse beneficiary gets a much worse deal. The account ceases to be an HSA on the date of death, and the entire fair market value is included in the beneficiary’s gross income for that tax year. The one offset: the beneficiary can reduce the taxable amount by any qualified medical expenses of the deceased that the beneficiary pays within one year of the death.¹⁰

Rolling Over IRA Funds Into an HSA

The tax code allows a one-time, tax-free transfer from a traditional or Roth IRA directly into your HSA. The amount of the transfer counts against your HSA contribution limit for that year, so if you have $4,400 in self-only contribution room and transfer $3,000 from your IRA, you can only contribute $1,400 more to the HSA. You cannot deduct the transferred portion on your tax return.

The transfer must move directly from the IRA trustee to the HSA trustee. You cannot withdraw the money into your own bank account first and then deposit it. Both accounts must belong to the same person, and you can only do this once in your lifetime. A testing period applies here too: you must remain covered by an HDHP for the 12 months following the month of the transfer. If you lose eligibility during that window, the transferred amount is included in your gross income and subject to a 10% additional tax.

Flexible Spending Arrangement Rules

Flexible Spending Arrangements work differently from HSAs. An FSA is an employer-sponsored benefit funded through salary reduction. The money comes out of your paycheck before taxes, reducing your taxable income. You do not own the account, cannot invest the balance, and generally must spend the funds within the plan year or lose them.

One feature trips people up: the full annual election is available on the first day of the plan year, even if you have only made one payroll contribution so far. If you elect $3,400 in January and have a $3,400 medical bill in February, the FSA covers it immediately. Your employer bears the risk of front-loading that amount.

Health FSA Limits for 2026

For 2026, the maximum employee salary reduction contribution to a health FSA is $3,400 per year. Health FSA funds can pay for broadly the same categories of medical expenses as an HSA, including prescriptions, copayments, and medical equipment.

Dependent Care FSA Limits for 2026

The Dependent Care FSA covers expenses for the care of a qualifying child under age 13 or a dependent who cannot care for themselves. For 2026, the maximum exclusion is $7,500 per household, or $3,750 if married and filing separately. That is a significant increase from the prior $5,000 and $2,500 limits, enacted by the One Big Beautiful Bill Act.¹¹

The Use-It-or-Lose-It Rule

Under the default FSA rules, any balance left at the end of the plan year is forfeited. Employers can adopt one of two relief provisions, but not both at the same time.

Grace period: the employer extends the deadline to incur expenses by up to two and a half months after the plan year ends. For a plan year ending December 31, that pushes the deadline to March 15. Any funds still unspent after the grace period are forfeited.
Carryover: the employer allows you to roll over up to $680 of unused health FSA funds into the next plan year. The carryover does not reduce the following year’s contribution limit.

Your employer chooses which option to offer, if any, and must amend their plan document accordingly. Not every employer offers either one, so check your plan terms before assuming leftover funds will survive.

Health Reimbursement Arrangements

HRAs are funded entirely by the employer. You cannot contribute your own money. The employer sets the reimbursement amount, and there is no federal cap on how much the employer can put in. HRA funds reimburse you for qualified medical expenses, and those reimbursements are generally tax-free.

HRA balances are not held in a separate account you own. They are a promise from the employer to reimburse you up to a set amount. Most HRA plans allow unused balances to roll over from year to year, but the specific terms depend on the plan document. If you leave the company, you typically forfeit any remaining HRA balance unless the plan says otherwise.

QSEHRA

A Qualified Small Employer HRA is designed for businesses with fewer than 50 full-time employees that do not offer a group health plan. The employer reimburses employees for individual health insurance premiums and other medical expenses up to an annual cap.¹² For 2026, the QSEHRA maximum reimbursement is $6,450 for self-only coverage and $13,100 for family coverage.

ICHRA

The Individual Coverage HRA allows employers of any size to reimburse employees for individual health insurance premiums and other qualified medical expenses. There is no federal cap on how much an employer can contribute. The employer can vary the amounts by employee class, such as full-time versus part-time or geographic location, as long as all employees within a class receive the same terms. Employees who receive ICHRA benefits generally cannot also claim the premium tax credit on the health insurance marketplace for the same coverage.

Archer MSAs

Archer Medical Savings Accounts were the predecessor to the modern HSA. The program was designed for self-employed individuals and employees of small businesses with 50 or fewer workers. No new Archer MSAs can be established. The statutory cutoff year was 2007, and accounts created before that date can continue operating under the original rules.¹³

The mechanics resemble an HSA in broad strokes. Contributions are tax-deductible, growth is tax-free, and distributions for qualified medical expenses come out tax-free. Contribution limits are calculated as a percentage of the HDHP deductible rather than a flat dollar amount, up to 65% of the deductible for self-only coverage and up to 75% for family coverage. Non-qualified distributions face ordinary income tax plus a 20% penalty, the same structure as HSAs before age 65.

1
Internal Revenue Service. Health Savings Accounts and Other Tax-Favored Health Plans
2
Internal Revenue Service. Rev. Proc. 2025-19 – 2026 Inflation Adjusted Amounts for HSAs
3
Office of the Law Revision Counsel. 26 USC 223 – Health Savings Accounts
4
Office of the Law Revision Counsel. 26 US Code 213 – Medical, Dental, Etc., Expenses
5
Internal Revenue Service. About Form 8889, Health Savings Accounts (HSAs)
6
Internal Revenue Service. Form 5498-SA – HSA, Archer MSA, or Medicare Advantage MSA Information
7
Internal Revenue Service. Form 1099-SA – Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
8
Office of the Law Revision Counsel. 26 USC 4973 – Tax on Excess Contributions to Certain Tax-Favored Accounts
9
Internal Revenue Service. Instructions for Form 5329
10
Office of the Law Revision Counsel. 26 US Code 223 – Health Savings Accounts
11
FSAFEDS. Dependent Care FSA
12
HealthCare.gov. Health Reimbursement Arrangements (HRAs) for Small Employers
13
Office of the Law Revision Counsel. 26 USC 220 – Archer MSAs