What's The Difference Between An FSA And HSA? (2022)

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Health savings accounts and flexible spending accounts offer two of the best ways to put aside money tax-free for health care expenses.

A health savings account (HSA) offers the opportunity to build a stash of cash that can help you pay medical expenses for years or even decades. But not everybody is eligible for an HSA.

On the other hand, just about everyone is eligible for a flexible spending account (FSA). However, you generally can’t carry over money in this savings account into the following year. Either you use it or you lose it.

Here’s more about these medical savings accounts and which one is best for you.

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(Video) What's an HSA? HRA? FSA?

What’s an HSA?

A health savings account allows you to save money on a pre-tax basis that later can be used to pay for qualified medical expenses. More commonly known as an HSA, this account has triple tax advantages:

  • You can deduct the money that goes into the account during the year you make the contribution.
  • The money grows tax-free.
  • You can withdraw the money tax-free when you use it for qualified medical expenses.

In essence, you will never owe income taxes on the money you put into an HSA as long as you use it to pay for qualified medical expenses.

Keep in mind that if you’re 65 or older you will be taxed at standard income rates for withdrawals for expenses that don’t qualify as medical costs. If you’re under age 65, you pay a 20% penalty for non-medical withdrawals, in addition to the tax penalty.

In 2022, you can contribute:

  • Up to $3,650 to an HSA for self-only coverage
  • Up to $7,300 for family coverage

To qualify for a health savings account, you must:

  • Have a high-deductible health insurance plan
  • Not be enrolled in Medicare
  • Not be claimed as a dependent on anyone else’s taxes

In 2022, a high deductible health plan is defined as one with:

  • A deductible of $1,400 or more for an individual and $2,800 for a family.
  • Annual out-of-pocket expenses can’t exceed $7,050 for an individual or $14,100 for a family.

What’s an FSA?

A flexible spending account is a benefit program you get through work that lets you set aside money on a pre-tax basis to pay for health care expenses throughout the year.

More commonly known as an FSA, you generally must use the money in the account within the year that you contribute it. If you don’t, you forfeit the cash.

However, companies have the option to offer one but not both of the following exceptions to this rule:

  • A “grace period” of up to 2.5 extra months after the end of the year to use your FSA funds
  • The ability to carry over up to $570 per year to use on medical expenses in the following year

In 2022, you can contribute whatever your employer allows to an FSA account, with a cap of $2,850.

What Can You Pay for With an HSA?

You can use an HSA to pay for many different types of medical expenses. The IRS says that an expense that qualifies for the medical and dental expenses tax deduction generally also serves as a qualified medical expense for an HSA.

You can find a list of such expenses in Publication 502, Medical and Dental Expenses. The list is long, but some examples of common services and expenses on it include:

  • Acupuncture
  • Birth control treatment
  • Blood sugar test kits for diabetics
  • Breast pumps and lactation supplies
  • Chiropractor services
  • Contact lenses and solutions
  • Dental car
  • Doctor’s office co-pays
  • Drug prescriptions
  • Eyeglasses
  • Feminine hygiene products
  • Hearing aids and batteries
  • Infertility treatments
  • Insulin
  • Laser eye surgery
  • Over-the-counter medicines (purchased after 2019)
  • Physical therapy
  • Speech therapy
  • Stop-smoking programs
  • Vision exams

What Can You Pay for With an FSA?

As with an HSA, the IRS says that an expense that qualifies for the medical and dental expenses tax deduction generally also serves as a qualified medical expense for an FSA.

As with an HSA, you also can use an FSA to pay for over-the-counter medicines. This is a change to the law that was implemented beginning in 2020.

As part of this change, you also now can use an FSA to pay for menstrual care products.

HSA vs. FSA: What’s the Difference?

“HSA” and “FSA” are separated by just one letter, but there are major differences in terms of what these two types of health savings plans offer.

Below are some of the key similarities and differences.

HSA vs. FSA

HSAFSA
Annual amount you can contribute$3,650 for self-only coverage$7,300 for family coverageDetermined by employer, but limited to $2,850
Employer can contribute to accountYesYes
Employee can take account with them when they change jobsYesNo
Pre-tax contributions allowedYesYes
Can carry over year to yearYesNo, with some exceptions
Can invest in stocks for growthYesNo
Need high-deductible health plan to qualifyYesNo
Required to report on tax returnYesNo
Can be used to pay for most over-the-counter medicationsYesYes

Pros of HSAs

Health savings accounts offer many positives:

  • If you use HSA funds to pay for qualified health expenses, the money will never be subject to income taxes.
  • The amount you can save is much more generous than what you get with an FSA.
  • You can carry the money over year to year and can bring your HSA funds with you after you leave your employer.
  • You can invest the money in stocks and other instruments, potentially dramatically growing the amount of money in the account.
  • Your employer may contribute to your HSA.

Cons of HSAs

Health savings accounts also come with some negatives:

  • You must have a high-deductible health plan to qualify for an HSA.
  • If you withdraw the funds to pay for things other than qualified medical expenses, you typically owe a 20% penalty plus income taxes.
  • Some HSA plans might not offer the option to invest in stocks.

Pros of FSAs

Flexible spending accounts offer many positives:

  • FSAs provide an easy way to save in a tax-advantaged way for medical expenses.
  • Your employer may contribute to your FSA.
  • You don’t need to report your FSA contributions on your tax return.

Cons of FSAs

Flexible spending accounts also come with some negatives:

  • The amount you can save is far less than in an HSA.
  • You typically must use the money in the year in which you make the contribution, or you will lose it.
  • Unlike an HSA, an FSA is not portable so you can’t take it with you if you change jobs.

How Do You Use an HSA or FSA?

With an HSA and FSA, you typically either pay for your expenses with a debit card and the funds are directly debited from your account or you pay with your own funds and submit a receipt for reimbursement.

Keep your receipts in case you must provide documentation of the medical expense you incurred. Rules may differ from employer, however, so make sure you ask your company how the process works.

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(Video) What is HSA vs FSA? Flexible Spending Account or Health Savings Account EXPLAINED

FSA vs. HSA Frequently Asked Questions

Can I take out money from an HSA for non-medical expenses?

You can use an HSA for non-medical expenses, but you typically pay a 20% penalty if you withdraw funds from an HSA and use them for non-medical expenses.

However, this is not true once you turn 65. At that point, you can withdraw the funds for any reason and you will not owe a penalty. You will, however, owe taxes on the withdrawal if you do not use the money to pay for qualified medical expenses.

If you become disabled before age 65, you also can withdraw funds for any reason without penalty, but will owe taxes if the withdrawal is not used to pay for qualified medical expenses.

How much money can I put into an HSA?

Each year, the IRS updates its rules about how much you can contribute to an HSA. For 2022, you can contribute $3,650 for self-only coverage or $7,300 for family coverage.

In 2023, these amounts will rise to $3,850 for self-only coverage or $7,750 for family coverage. Those who are 55 or older can contribute an extra $1,000.

Can an employer contribute to an HSA and FSA?

Yes, employers can and often do contribute to both an HSA and an FSA. This is one of the perks that some companies offer to employees.

Can you use FSA and HSA funds to pay for dental care?

The IRS states that an expense that qualifies for the medical and dental expenses tax deduction generally also serves as a qualified medical expense for an FSA or an HSA.

Dental expenses that qualify for a tax deduction include those that “pay for the prevention and alleviation of dental disease,” the IRS says.

Examples of expenses that qualify are:

  • Preventive treatment, such as teeth cleaning
  • Application of sealants
  • Fluoride treatments
  • Procedures, such as X-rays, fillings, braces, extractions and dentures

The fact that an FSA or HSA can be used for dental expenses makes them particularly valuable for folks who do not have dental insurance.

What’s an HRA?

A health reimbursement arrangement, or HRA, differs slightly from both an HSA and an FSA. Employers own an HRA and a company also decides how the account can be used to pay for medical and dental expenses.

Employees cannot contribute to an HRA. Rather, the company provides all the funds. With an HRA, you’re reimbursed for qualified medical expenses tax-free up to a specified amount each year. When you change jobs, you lose the HRA since it’s owned by the company.

(Video) HSA vs FSA: Which One Should You Get?

FAQs

What is the difference between FSA and HSA? ›

The most significant difference between flexible spending accounts (FSA) and health savings accounts (HSA) is that an individual controls an HSA and allows contributions to roll over, while FSAs are less flexible and are owned by an employer.

What can HSA be used for VS FSA? ›

Withdrawal rules: FSA money can be used only to cover eligible medical expenses. HSA funds can be withdrawn for other purposes, but withdrawals before age 65 are subject to a 20% penalty plus income taxes if the money isn't used to cover medical care.

What is the difference between a flexible spending account and health savings account quizlet? ›

FSAs require annual, use-it-or-lose-it elections, from which medical costs are reimbursed throughout the plan year; HSAs do not have the use-it-or-lose-it requirement. HSAs are often part of high-deductible plan packages and can be rolled over.

What is the point of an FSA account? ›

A Flexible Spending Account (also known as a flexible spending arrangement) is a special account you put money into that you use to pay for certain out-of-pocket health care costs. You don't pay taxes on this money. This means you'll save an amount equal to the taxes you would have paid on the money you set aside.

Do FSA funds expire? ›

How Long Do You Have to Spend 2021 FSA Money? You usually have to spend FSA money by the end of the year or by March 15 of the following year if you have a grace period. However, the COVID-19 relief bill Congress signed in 2020 means you might have until Dec. 31, 2022, to spend FSA money earmarked for 2021.

Can you use HSA for dental? ›

HSA - You can use your HSA to pay for eligible health care, dental, and vision expenses for yourself, your spouse, or eligible dependents (children, siblings, parents, and others who are considered an exemption under Section 152 of the tax code).

Should you max out your HSA account? ›

A health savings account (HSA) is an account specifically designed for paying health care costs. The tax benefits are so good that some financial planners advise maxing out your HSA before you contribute to an IRA.

Do HSA funds expire? ›

The money you contribute to an HSA has no “expiration date.” You can withdraw funds you need to pay for everyday out-of-pocket health care expenses or save them for care you may need years down the road.

What is the benefit of using a health savings account HSA or flexible savings account FSA quizlet? ›

HSAs allow individuals to set aside their own money on a pre-tax basis for the later payment of health care expenses (employers can also contribute).

What is a significant difference between flexible spending arrangements FSAs and health savings accounts HSAs quizlet? ›

What differentiates Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs)? A) Amounts contributed to Flexible Spending Accounts (FSAs) may not be rolled over from one year to the next. B) Health Savings Accounts (HSAs) expire on an annual basis but Flexible Spending Accounts (FSAs) continue perpetually.

Can I use my FSA card for gas? ›

Fuel - Gas costs for travel to and from a medical care facility are eligible for reimbursement, however you'll need to keep a mileage log and provide receipts for your gas purchase when you submit a claim.

Is having an FSA worth it? ›

If you have any ongoing or expected medical needs you might have to pay for in the upcoming year, an FSA is a great use of your money. The funds can also be used for over-the-counter items such as allergy and sinus drugs, first-aid supplies, digestive health products and home COVID-19 tests.

Can I use FSA for dental? ›

According to the Internal Revenue Service Publication 752, an individual can use their FSA coverage for all dental procedures that treat or prevents a dental disease such as: Teeth cleaning. Root canals. Dental fillings.

Can you cash out FSA? ›

Can I get cash off my FSA card? In rare cases when you need to pay for qualifying expenses but the provider or store doesn't take your FSA card, you can use your card to withdraw cash to make the payment. However, you must keep all the documentation proving that the amount you withdrew was used for eligible expenses.

What happens to your FSA money if not used? ›

Unused FSA money returns to your employer. The funds can be used towards offsetting administrative costs incurred during the plan year, employers can also reduce annual premiums in the next FSA year, or funds must be equally distributed to employees who enroll in an FSA for the next year.

Do you lose FSA money if you don't use it? ›

You can use FSA funds to pay for things like medical expenses, doctor visit copays, vision expenses, and prescriptions. But keep in mind that FSA dollars have an expiration date. If you don't use your funds before the end of the year, you may lose them.

Can I buy groceries with my HSA card? ›

No, you can't use your Flexible Spending Account (FSA) or Health Savings Account (HSA) for straight food purchases like meat, produce and dairy. But you can use them for some nutrition-related products and services. To review, tax-advantaged accounts have regulatory restrictions on eligible products and services.

Can you buy toilet paper with HSA? ›

On the counterpoint, let's take a quick look at some of the expenses that don't qualify for payment out of your HSA, even during the coronavirus pandemic: Babysitting and childcare costs for a normal, healthy child. Medicines and drugs from other countries. Personal care items like toilet paper and soap.

Can I use HSA for glasses? ›

An FSA or HSA can be used to pay for the following types of eyewear: Prescription eyeglasses, including reading glasses, progressive multifocals and bifocals. Eyeglass frames (without lenses) Prescription sunglasses.

How much money should you have in your HSA? ›

Here's where the guesswork comes in: Think about your medical history and your family's history of longevity. Use that information to choose an HSA savings goal. The number should be between $150,000 and $1 million if estimating for you and a spouse. Adjust down if you're estimating for yourself only.

How much is too much in an HSA? ›

HSA contributions in excess of the IRS annual contribution limits ($3,600 for individual coverage and $7,200 for family coverage for 2021) are not tax deductible and are generally subject to a 6% excise tax.

What is the average HSA balance? ›

The average HSA balance for a family is about $7,500 and for individuals it is about $4,300. This average jumps up to $12,000 for families who invest in HSAs. Here's a breakdown of the average HSA balance by age.

What happens to unused money in an HSA account? ›

HSA money is yours to keep. Unlike a flexible spending account (FSA), unused money in your HSA isn't forfeited at the end of the year; it continues to grow, tax-deferred. What happens if my employment is terminated? HSAs are portable and move with you if you change employment.

What happens to HSA money when you retire? ›

If you're 65 or older, retired and on Medicare, you're no longer eligible to contribute to the HSA, but can continue to use the funds for qualified medical expenses. If you're 65 or older, you're not limited to using an HSA just for health care expenses.

Can I use my HSA for massage? ›

Massage Therapy is eligible for reimbursement through most FSA's and HSA's. Some do require a Letter of Medical Necessity from your doctor, but this means you can potentially be reimbursed from your insurance for your massage from us! You just need a note from your primary care physician.

What is the maximum amount for FSA 2022? ›

For 2022, participants may contribute up to an annual maximum of $2,850 for a HCFSA or LEX HCFSA. This is an increase of $100 from the 2021 contribution limits. The Dependent Care FSA (DCFSA) maximum annual contribution limit did not change for 2022.

What is the maximum for flexible spending accounts in 2022? ›

For 2022, the contribution limit is $2,750. This election must be made during benefits open enrollment and cannot be changed, unless of a life-qualifying event.

What are the 4 types of FSA? ›

4 Types of Flexible Spending Accounts
  • Medical Expense. One of the most common types of flexible spending account is the medical expense account. ...
  • Dependent Care. Another option that you may have is a dependent care flexible spending account. ...
  • Health Premiums. ...
  • Adoption Assistance.

Which account has the highest annual interest rate? ›

The best high-yield savings account rates
  • Citizens - 2.35% APY.
  • CIBC Bank USA - 2.32% APY.
  • Synchrony Bank - 2.25% APY.
  • Popular Direct - 2.25% APY.
  • Capital One - 2.15% APY.
  • Quontic Bank - 2.15% APY.
  • Sallie Mae Bank - 2.15% APY.
  • Marcus by Goldman Sachs - 2.15% APY.

What are the main advantages of a high deductible health plan? ›

HDHPs are thought to lower overall health care costs by making individuals more conscious of medical expenses. The higher deductible also lowers insurance premiums, leading to more affordable monthly costs. This arrangement benefits healthy people who need coverage for serious health emergencies.

What is the maximum amount an employee can contribute to an FSA on an annual basis? ›

The maximum amount an employee can contribute to a dependent care FSA is set by the employer as long as it does not exceed the IRS maximum which is $5,000 a year for individuals or married couples filing jointly, or $2,500 for a married person filing separately.

Can you have both HSA and FSA? ›

You generally can't contribute to both a health savings account and a flexible spending account in the same year, unless you have a limited-purpose FSA that only covers certain expenses, such as dental and vision costs.

Can I contribute to an FSA after age 65? ›

After retirement, you are no longer eligible to make contributions to an HSA. Health FSA—grace period. Coverage during a grace period by a general purpose health FSA is allowed if the balance in the health FSA at the end of its prior year plan is zero.

What is a FSA health care plan? ›

An arrangement through your employer that lets you pay for many out-of-pocket medical expenses with tax-free dollars. Allowed expenses include insurance copayments and deductibles, qualified prescription drugs, insulin, and medical devices.

Do I need both FSA and HSA? ›

You generally can't contribute to both a health savings account and a flexible spending account in the same year, unless you have a limited-purpose FSA that only covers certain expenses, such as dental and vision costs.

Do I need an FSA if I have an HSA? ›

To be eligible for an HSA, there are only a few requirements, with two of the big ones being that you must be covered by a high-deductible health plan (HDHP), and you can't participate in both an HSA and a medical flexible spending account (medical FSA).

Is a healthcare FSA worth it? ›

If you have any ongoing or expected medical needs you might have to pay for in the upcoming year, an FSA is a great use of your money. The funds can also be used for over-the-counter items such as allergy and sinus drugs, first-aid supplies, digestive health products and home COVID-19 tests.

What happens to my FSA when I quit? ›

Any unused money in your FSA goes back to your employer once you leave your job. If you have a healthcare FSA, you could have the option to continue access to your funds through COBRA. But you can't use your FSA contributions to pay for health insurance premiums either through COBRA or in the private market.

Can I use HSA for dental? ›

HSA - You can use your HSA to pay for eligible health care, dental, and vision expenses for yourself, your spouse, or eligible dependents (children, siblings, parents, and others who are considered an exemption under Section 152 of the tax code).

Why cant you have an HSA and an FSA? ›

Yes, you can have an FSA with an HSA

As long as your employer offers either a limited-purpose or post-deductible FSA, you can keep your HSA with no issues! Remember, FSA funds disappear after the plan's year is over with a few exceptions, so make sure you'll definitely use that money before making any contributions.

What is the maximum amount for FSA 2022? ›

For 2022, participants may contribute up to an annual maximum of $2,850 for a HCFSA or LEX HCFSA. This is an increase of $100 from the 2021 contribution limits. The Dependent Care FSA (DCFSA) maximum annual contribution limit did not change for 2022.

What is the FSA limit? ›

A flexible spending account (FSA) is an employer-sponsored benefit that helps you save money on many qualified healthcare expenses. You can contribute pretax dollars to fund the account. The health FSA contribution limit is $2,850 for 2022, up from $2,750 in the prior year.

How much should you contribute to HSA? ›

If you're covered by an HSA-eligible health plan (or high-deductible health plan), the IRS allows you to put as much as $3,650 per year (in 2022) into your health savings account (HSA). If you're contributing to an HSA, and on a family HDHP, the maximum amount that you can contribute is $7,300 per year (in 2022).

What is the max amount for HSA in 2022? ›

Consumers can contribute up to the annual maximum amount as determined by the IRS. Maximum contribution amounts for 2022 are $3,650 for self-only and $7,300 for families. The annual “catch-up” contribution amount for individuals age 55 or older will remain $1,000.

Can I use FSA for dental? ›

According to the Internal Revenue Service Publication 752, an individual can use their FSA coverage for all dental procedures that treat or prevents a dental disease such as: Teeth cleaning. Root canals. Dental fillings.

Do you report FSA on taxes? ›

Your contribution to a FSA is not taxed at tax return time. It is untaxed money which can be used to pay for your out-of-pocket medical expenses. It is not taxed but you may lose the unspent portion of your FSA.

What can FSA be used for 2022? ›

expenses. Your 2022 FSAs can only be used to reimburse eligible expenses for care provided from the effective date of your enrollment through March 15, 2023. Different rules apply to Health Care and Dependent Care eligible expenses if your participa- tion in the plan ends before December 31, 2023.

Can I cash out my FSA? ›

Can I get cash off my FSA card? In rare cases when you need to pay for qualifying expenses but the provider or store doesn't take your FSA card, you can use your card to withdraw cash to make the payment. However, you must keep all the documentation proving that the amount you withdrew was used for eligible expenses.

Can I withdraw money from my FSA at an ATM? ›

A lot of people may wonder if they can access their FSA, HSA, DCA, or LPF funds via ATM to withdraw cash for medical expenses. Unfortunately, FSA cards cannot be used to withdraw FSA funds from an ATM. These cards can only be used directly on qualifying medical products and services.

Can you transfer FSA to bank account? ›

No, you can use funds only for the purpose for which the election was initially made. IRS regulations do not allow funds to be transferred or commingled between accounts. So, the money in your Health Care FSA may only be used for health care expenses and your Dependent Care FSA may only pay for dependent care expenses.

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