Every fall, a form or an email lands from your employer: it is open enrollment time, and you have a couple of weeks to choose your benefits for the coming year. It is tempting to keep last year's choices, click "submit," and move on. But those few checkboxes are quietly one of the most overlooked tax decisions you will make all year.
The accounts you sign up for during open enrollment — like a Health Savings Account or a Flexible Spending Account — let you pay for real expenses with money that is never taxed. Used well, they can lower your taxable income and leave more in your pocket. Here is how to look at open enrollment through a tax lens, with the latest IRS numbers to guide you.
Quick Answer
Open enrollment is a tax decision as much as a health decision. Accounts like HSAs and FSAs let you set aside money before taxes to pay for medical and dependent-care costs, which lowers your taxable income. Choosing the right accounts, and the right amounts, during open enrollment can reduce what you owe and help you plan for next year's expenses with pre-tax dollars.
Why open enrollment is really a tax decision
When you contribute to certain workplace accounts, that money comes out of your paycheck before income tax is calculated. Less taxable income generally means a lower tax bill. You are spending on things you would pay for anyway — doctor visits, prescriptions, child care — but doing it with untaxed dollars. The trade-off is that these accounts come with rules and deadlines, so the goal is to choose the right ones and estimate your amounts with care.
Health Savings Accounts (HSAs): the most tax-friendly account of all
An HSA is available to you if you are enrolled in a qualifying high-deductible health plan (HDHP). It offers what is often called a triple tax advantage: the money goes in untaxed, it can grow untaxed, and withdrawals for qualified medical expenses come out untaxed. Unlike an FSA, an HSA is yours to keep — the balance rolls over year after year and goes with you if you change jobs.
For 2026, you can contribute up to $4,400 if you have self-only coverage or $8,750 for family coverage. For 2027 — the year many people are now enrolling for — those limits rise to $4,500 for self-only and $9,000 for family. If you are 55 or older, you can add an extra $1,000 catch-up contribution on top.
To contribute, your health plan has to qualify as an HDHP. For 2026 that means a deductible of at least $1,700 for self-only coverage or $3,400 for a family; for 2027, at least $1,750 or $3,500. There are also caps on total out-of-pocket costs. If an HSA-eligible plan is offered during open enrollment, it is worth a close look.
Health FSAs: pre-tax money for medical costs
A Health Flexible Spending Account (FSA) also lets you set aside pre-tax money for medical expenses, but it works differently from an HSA. You choose an amount for the year, and it is deducted from your paychecks before taxes. For 2026, you can contribute up to $3,400 to a health FSA.
The catch is the "use it or lose it" rule. Depending on your plan, you may be able to carry over a limited amount into the next year — up to $680 for 2026 if your plan allows it — or you may have a short grace period to spend it. Anything left beyond that is generally forfeited, so it pays to estimate your expenses realistically rather than guessing high.
Dependent Care FSAs: bigger news for 2026
If you pay for child care, after-school care, or day care for a dependent so you can work, a Dependent Care FSA can be one of the most valuable boxes you check. And there is real news this year: a recent federal tax law raised the dependent care limit for the first time in decades. For 2026, you can set aside up to $7,500 (or $3,750 if you are married filing separately) — up from the long-standing $5,000 cap.
That is a meaningful increase in pre-tax dollars for working families. If child care is a major expense in your household, this account deserves a fresh look this open enrollment season. Keep in mind that a Dependent Care FSA and the federal Child and Dependent Care Credit interact, so it is worth checking which combination works best for your situation.
A few things to watch
A couple of rules trip people up. You generally cannot contribute to an HSA if you (or your spouse) are covered by a general-purpose health FSA — the two do not mix. And because FSA money can be forfeited, it is better to estimate conservatively. If you are unsure which accounts fit together, that is exactly the kind of question worth asking before you enroll.
One more note on timing: the IRS adjusts several of these limits each year, usually announcing the next year's health FSA and dependent-care figures in the fall. The HSA amounts above are confirmed for both 2026 and 2027; always confirm the current year's limits with your plan before you set your contributions.
Make a plan before you click submit
Open enrollment only comes around once a year, and the choices you make now shape your taxes and your cash flow for the next twelve months. A little planning — matching the right accounts to your real expenses — can turn a routine form into real savings. If you would like help thinking it through, the first consultation at Compass Tax Center is free, and we are happy to walk through your options with you.
A Note From Alisa
As an Enrolled Agent, one of the most common things I see is people leaving money on the table simply because open-enrollment forms feel confusing and the deadline sneaks up. These accounts are not just paperwork — they are a legitimate, IRS-sanctioned way to pay for things you are already buying, using untaxed dollars. My one caution...do NOT withdraw money and spend it on unrelated expenses. There is an additional 20% penalty on monies withdrawn for non-medical reasons. That can really add up quickly.
Common Questions
What's the difference between an HSA and an FSA?
Both let you pay for medical costs with pre-tax money, but an HSA requires a qualifying high-deductible health plan and the balance is yours to keep and roll over every year. A health FSA does not require a specific plan type, but it generally follows a "use it or lose it" rule, with only a limited carryover or grace period if your plan allows one.
How much can I contribute to an HSA in 2026 and 2027?
For 2026, the HSA contribution limit is $4,400 for self-only coverage and $8,750 for family coverage. For 2027, it rises to $4,500 for self-only and $9,000 for family. If you are 55 or older, you can contribute an additional $1,000 catch-up amount. You must be enrolled in a qualifying high-deductible health plan to contribute.
How much can I put in a Dependent Care FSA for 2026?
For 2026, you can contribute up to $7,500 to a Dependent Care FSA, or $3,750 if you are married filing separately. This is an increase from the previous $5,000 limit, the result of a recent federal tax law change, and it applies to care that allows you (and your spouse, if married) to work.
Do HSA and FSA contributions actually lower my taxes?
Yes. Contributions to these accounts are generally made before income tax is calculated, which lowers your taxable income for the year. You are using untaxed dollars to pay for expenses you would otherwise cover with after-tax money, which is where the savings come from.
What happens to FSA money I don't use?
Health FSA funds are generally subject to a "use it or lose it" rule. Depending on your plan, you may be able to carry over a limited amount to the next year (up to $680 for 2026) or use a short grace period, but anything beyond that is usually forfeited. This is why it helps to estimate your expenses carefully before you enroll.
Helpful Links
Related reading from Compass Tax Center — year-end planning and benefits (Compass Tax Center)
IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans (IRS)
IRS Child and Dependent Care Credit information (IRS)
Compass Tax Center provides tax preparation, planning, and IRS representation services. This article is general information, not legal, tax, or investment advice for your specific situation. Alisa is an IRS Enrolled Agent, federally licensed to represent taxpayers before the IRS in all 50 states.
Have a question about your situation?
Every return is different. If you'd like a real person to look at yours, your first consultation with Compass Tax Center is free.