What's the Difference Between FSA & HSA?

Valerie Henderson

Written by Valerie Henderson on Tue Feb 09 2021.

What's the Difference Between FSA & HSA?

The healthcare industry is famous for tossing around terms, abbreviations, and acronyms that can be confusing. To help with this, we created a quick guide on the specifics of FSAs and HSAs. Plus, we have curated a selection of products that you can use your FSA or HSA to purchase.

Also, see our FSA & HSA eligible categories.

HSA & FSA Definitions

HSA stands for a health savings account. A health savings account is a tax-free fund that eligible employees and self-employed individuals can use to pay for qualified out-of-pocket healthcare costs. However, there are some exclusions for what you can use your HSA to pay for, such as premiums. You can only have an HSA if you have a high deductible health plan, or HDHP.

FSA stands for flexible spending account. A flexible spending account is a tax-free fund that employees (not self-employed individuals) can use to pay for qualified out-of-pocket healthcare costs. Any employee can open an FSA, regardless of the type of health insurance they have.

How are they similar?

HSAs and FSAs have a few things in common. They both offer tax advantages if you contribute pre-tax dollars to your account. Employees, employers, or both can contribute to the accounts.

They can both help you save money to prepare for future medical expenses, or they can be used to cover current health care costs including copays, deductibles, qualifying prescriptions, and certain medical equipment. Employers aren’t required to offer HSAs or FSAs, nor are they required to contribute to an employee’s plan if they do decide to offer one or the other.

What’s the difference between HSA & FSA?

1. Ownership

HSA: It’s all yours! Your HSA will follow you when you change employers or retire. Even if you become unemployed, you can contribute as long as you have an HDHP.

FSA: It’s yours to spend until the end of the year for your plan. If you change jobs, you’ll lose your FSA funds unless you’re eligible for FSA continuation via COBRA.

2. Contribution limits

HSA: In 2021, limits for HSA funds are $3,600 for individuals and $7,200 for families, with a catch-up contribution limit of $1,000 for people over age 55. It’s important to note that these limits include self-made contributions as well as employer contributions.

FSA: In 2021, an individual can contribute up to $2,750 to their FSA. If employers provide contributions, that amount can be deposited in addition to the amount employees elect.

3. Contribution changes

HSA: You can adjust your contribution at any point, for any reason.

FSA: You can only adjust the amount you contribute during open enrollment, or due to a change in employment or family status.

4. Access to funds

HSA: You’ll only have access to what has already been deposited into your HSA account, so it’s important to add more if you know a big medical expense is looming on the horizon.

FSA: No waiting for funds here. At the beginning of the plan year, you can access the annual election you selected during open enrollment, regardless of what you have contributed to date.

5. How to pay

HSA: Owners can use their funds to cover a qualifying expense by paying with their designated HSA debit card at the time of service, or once they’ve received a bill. Alternately, they can receive reimbursement after paying for an eligible expense with a personal card, check, or cash. At tax time, any distributions must be reported on Form 8889.

FSA: In order to be reimbursed, an employee needs to submit a claim and a written statement certifying that an expense isn’t covered by a different plan. FSA contributions do not need to be reported on tax forms.

6. Tax benefits

HSA: HSA contributions are tax-deductible, so they will reduce federal income taxes owed. In addition, funds grow tax-free over time. And finally, the funds can be withdrawn without being taxed, as long as you use them for qualified medical expenses.

FSA: FSA contributions aren’t tax-deductible because FSAs are funded through salary deferrals, but since the account uses pretax dollars, your contributions will still help reduce your taxable wages.

7. Rollover options

HSA: Again, it’s all yours.

FSA: Your unused balance will be forfeited at the end of each year unless your employer allows a rollover (capped at $500). Employers also frequently allow a grace period of 2.5 months to use funds after the year ends.

What’s covered by an FSA or HSA?

Whether you have an FSA or HSA account, so many expenses are eligible that it can be hard to keep track. Want to know if something makes the cut? Visit the IRS website for a full list. Among the items that apply to caregivers are:

  • Incontinence supplies

  • Blood pressure monitors

  • Diabetic monitors

  • Compression socks

  • Crutches

  • Canes

  • Walkers

Regardless of whether you have an HSA or FSA, you’ll benefit by reducing your taxable income, decreasing your tax liability, and building peace of mind for the near or long-term future.

Read NextThe ABCs of Medicare

Did you find this article helpful?Share it, print it or have it mailed to you!

Other Articles You May Like

The ABCs of Medicare: Who's Covered? What's Covered? What's Not?

When you’re caregiving, you have enough to do without trying to navigate the complexities of insurance, so we put together a simple overview of what’s covered, what’s not, and who can take advantage of Medicare’s most common offerings.

Read More >

Ask Jonathan: "How Do I Talk to My Mom About Her Finances?"

Talking to your parents about finances is common challenge that many of Carewell’s members face with their aging parents. Asking about finances has always been a taboo topic. Plus, when you think of it from your mom’s perspective, your parents have probably always been the one to look out for you. Now, with the roles beginning to reverse, she may be reluctant to transition from caregiver to care recipient.

Read More >
Valerie Henderson
Valerie Henderson

Having written for companies ranging from MTV to the Olympics, Valerie Henderson spearheads Carewell's communications and PR efforts. A resident of Park City, Utah, Valerie enjoys four of the things her region is famous for: hiking, independent film, a house full of kids, and weak beer.