HSA vs FSA

When it comes to healthcare benefits, there are two common types of accounts that employees can contribute to: Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). While both accounts offer tax advantages, they have some key differences that employees should be aware of.

What is an HSA?

An HSA is a tax-advantaged savings account that individuals can use to pay for qualified medical expenses. In order to contribute to an HSA, you must be enrolled in a high-deductible health plan (HDHP). The money you contribute to your HSA is tax-deductible and grows tax-free. You can use the funds in your HSA to pay for qualified medical expenses, including deductibles, copayments, and prescriptions.

Benefits of an HSA

• Tax-deductible contributions
• Tax-free growth
• Withdrawals for qualified medical expenses are tax-free
• Unused funds roll over from year to year
• Portable - you can take your HSA with you if you change jobs or retire

What is an FSA?

An FSA is also a tax-advantaged account that individuals can use to pay for qualified medical expenses. Unlike an HSA, you do not need to be enrolled in a high-deductible health plan to contribute to an FSA. The money you contribute to your FSA is also tax-deductible and can be used to pay for qualified medical expenses.

Benefits of an FSA

• Tax-deductible contributions
• Withdrawals for qualified medical expenses are tax-free
• Can be used for dependent care expenses

Key Differences between HSA and FSA

While both accounts offer tax advantages, there are some key differences between HSAs and FSAs:

Eligibility

As mentioned earlier, in order to contribute to an HSA, you must be enrolled in a high-deductible health plan. There are no eligibility requirements for an FSA.

Contribution Limits

The contribution limit for an HSA is higher than that of an FSA. In 2021, the contribution limit for an HSA is $3,600 for individuals and $7,200 for families. The contribution limit for an FSA is $2,750.

Roll-Over

Unused funds in an HSA roll over from year to year, while unused funds in an FSA typically do not. However, some employers may offer a grace period or allow employees to carry over a limited amount of funds.

Ownership

HSAs are owned by the individual, while FSAs are owned by the employer.

Which one is right for you?

Choosing between an HSA and FSA depends on your individual circumstances. If you are eligible for an HSA and anticipate high medical expenses, an HSA may be a good option for you. If you have lower medical expenses and want to use your funds for dependent care expenses, an FSA may be a better fit.

Ultimately, it's important to understand the differences between HSAs and FSAs and choose the account that best fits your healthcare needs.