The limited purpose FSA exists to solve a specific IRS problem. A regular health FSA disqualifies an employee from contributing to a health savings account (HSA), because the IRS considers the general-purpose FSA "other health coverage." A lot of employees with high-deductible plans wanted both the HSA (for long-term tax-advantaged savings) and the immediate pre-tax benefit of an FSA. The LPFSA is the compromise: an FSA that's narrow enough in scope not to count as disqualifying health coverage.
How the LPFSA Differs From a General Purpose FSA A general purpose FSA can be used for nearly any qualifying medical expense under IRS Section 213(d): deductibles, copays, prescriptions, over-the-counter medications, medical equipment. An LPFSA is narrower: it covers dental and vision expenses, plus medical expenses after the HSA-eligible high-deductible health plan deductible has been met for the year.
The narrowness is what preserves HSA eligibility. Because the LPFSA doesn't reimburse most medical expenses until after the deductible, the IRS treats it as compatible with an HSA. Employees can contribute to both accounts and get the tax benefits of each.
What the 2026 Contribution Limits Look Like The 2026 FSA contribution limit, which applies to LPFSAs as well, is $3,300 per employee (up from $3,200 in 2025). Employers can allow carryover of up to $660 of unused funds to the next plan year, or a 2.5-month grace period, but not both. Amounts above the carryover limit are forfeited at year-end.
For employees pairing an LPFSA with an HSA, the HSA contribution limit runs separately. In 2026 the HSA limit is $4,400 for self-only coverage and $8,750 for family coverage, with a $1,000 catch-up for employees 55 and older. Combining both accounts lets employees shelter meaningful amounts from taxes.
What Expenses Qualify for an LPFSA? Dental: exams, cleanings, fillings, orthodontia, dentures. Vision: exams, glasses, contacts, LASIK. Post-deductible medical: any qualifying medical expense after the employee has met the HDHP deductible for the year. Non-qualifying: everything else the general purpose FSA would cover before the deductible is met.
Why Employers Offer LPFSAs Employers that offer an HSA-eligible high-deductible health plan sometimes add an LPFSA option because it removes a decision tradeoff for employees. Without the LPFSA, employees with an HSA can't use an FSA. That meant they were choosing between immediate dental and vision tax savings and long-term HSA savings. The LPFSA lets them do both.
Adoption is usually modest at first. Employees who already have HSAs take it up; employees new to HDHPs often don't. The LPFSA tends to grow in use as HDHP adoption grows across the workforce.
Running an LPFSA Program Cleanly LPFSA administration runs on the same rails as general FSA administration: enrollment, claim substantiation, debit card controls, year-end forfeiture tracking. The additional work is restricting eligible expenses to the dental, vision, and post-deductible categories, which most administrator platforms handle automatically.
Clear employee education is the piece employers often underinvest in. Enrollment materials that explain when to use the LPFSA versus the HSA, which expenses qualify, and how the post-deductible reimbursement works reduce the support burden during the year. The IRS Publication 969 is the authoritative reference for HSA, FSA, and LPFSA rules.
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