HSA and FSA Enhancements Taking Effect in 2026

There is great news for federal employees who rely on qualified healthcare and dependent care spending accounts such as health savings accounts (HSAs) and flexible spending accounts (FSAs) to help pay for healthcare and dependent daycare expenses. Budget reconciliation bill H.R. 1 (otherwise referred to as the “One Big Beautiful Bill Act” or OBBBA) contain several enhancements affecting HSAs and FSAs. These enhancements take effect January 1,2026 which provides federal employees over two months to plan accordingly and prepare for the 2025 OPM-sponsored  benefits “open season” which starts November 10, 2025. The following is a summary of the changes to HSAs and FSAs:

Health Savings Accounts (HSAs)

The OBBBA affects HSA in three separate and distinct areas as discussed here:

1. Bronze and catastrophic Affordable Care Act (ACA) individual health insurance plans. Beginning in 2026, individuals in ACA marketplace plans will be eligible to establish and fund an HSA in order to assist with out-of-pocket expenses related to health, dental and vision care. Until now, ACA plans did not meet the IRS definition of an HSA qualified high-deductible health plan (HDHP). While federal employees have access to HDHPs in the Federal Employees Health Benefits (FEHB) program, once a federal employee leaves federal service, he or she is no longer eligible to be enrolled in the FEHB program and loses access to an HDHP.
2. Direct Primary Care (DPC). Strating January 1, 2026, membership fees for “direct primary care”, a prepaid primary healthcare expense, qualify as HSA-eligible expense. The 2026 DPC fees eligible for HSA reimbursement are set at $150 per month for individuals and $300 per month for families and will be annually indexed for inflation.
3. Telehealth. Under current law, HSA-qualified health insurance plans are not allowed to cover otherwise eligible health expenses at 100 percent. In other words, the HDHP that the HSA is associated with has to apply to all medical care except preventive care. This leaves HDHP enrollees with the cost of telehealth cost. Under the new law, telehealth expenses are covered by HDHPs at 100 percent starting January 1, 2026. This same relief was temporarily granted during and shortly after the COVID pandemic but was eventually removed. Health insurance companies will need to decide whether to modify their HDHPs to allow this enhanced coverage.

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As a reminder to federal employees and retirees who own an HSA, tax-free withdrawals may be made from an HSA to pay for COVID testing and treatment costs that an employee or a retiree pays out-of-pocket. For the most part, an employee’s or a retiree’s FEHB program health insurance (including high-deductible health plans) should cover the cost of COVID-19 vaccinations which means an employee or retiree should not have out-of-pocket costs.

COVID vaccine coverage could potentially change under the direction of HHS Secretary Robert F. Kennedy, Jr. However, the American Health Insurance Plan (AHIP) trade association that represents health insurance plans that cover more than 200 million Americans, has said that its members health plans will continue to cover “updated formulations” of the COVID-19 and influenza vaccines with no cost-sharing for patients through the end of 2026.

Flexible Spending Accounts

The federal government offers two types of flexible spending accounts (FSAs) to Executive Branch employees. One FSA is a health care FSA (HCFSA). The HCFSA reimburses employees for out-of-pocket medical, dental and vision expenses such as deductibles, co-payments and co-insurance. An employee who wants to use an HCFSA elects to set aside a portion of the employee’s gross salary that goes into the HCFSA. Each year the IRS sets the maximum that can be set aside. For the year 2025, the maximum is $3,300. For 2026, the maximum HCFSA contribution increases to $3,400.

The other type of FSA offered to federal employees is the dependent care flexible spending account (DCFSA). A DCFSA is used to pay for childcare costs such as daycare, preschool and summer day camps, but also can but used to care for qualifying adults who are unable to care for themselves.

For the first time in nearly 40 years, the annual DCFSA contribution limit is increasing. This limit has been the same for 40 years at $5,000, or $2,500 depending on dependent status and tax filing. With the new law, the DCFSA limit for 2026 will increase to $7,500 for single tax-filers, and $3,750 for married individuals filing separately.

Federal employees will be able to make elections as to how much they want to set aside to their HCFSA and/or DCFSA for the 2026 plan year during the benefits “Open Season”. This year’s benefits “open Season” will be held from November 10 through December 8, 2025. More information about the HCFSA and DCFSA may be found at https://www.fsafeds.com.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert

A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.

He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.