HSA vs FSA: what’s the difference?

Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA) have a lot in common. They are both pre-tax accounts that you pay money into, which you then use to cover healthcare costs. This can range from a copayment on a doctor’s visit to a box of bandages.

But they don’t work exactly the same. Like Forbes Explain, an FSA is always set up through your employer, and therefore essentially owned by your employer. If you don’t spend your annual balance by the end of the year, you lose it (although there may be a grace period so you can keep spending part of the next year). And if you quit your job, you are also leaving behind whatever is in your FSA (although there may be Opportunities for grace periods in this case as well).

Some employers offer HSAs, but you can also install one yourself, usually through a bank. Either way, it’s totally up to you. The money in your account is transferred from year to year and it will not disappear if you quit your job. However, not everyone qualifies for an HSA. You cannot be a Medicare member, you cannot be listed as a dependent on another person’s tax return, and you absolutely must be covered by a high deductible health insurance plan (HDHP). As to what is considered an HDHP, the IRS decides on the minimum deductible and the maximum reimbursable expenses on an annual basis.

The IRS also decides annual contribution limits for FSAs and HSAs. Usually you can put more in an HSA. the limit 2022 is $ 3,650 for a single person’s HSA, compared to $ 2,850 for an FSA. Typically, with an FSA, you pick an amount for the whole year and it will come out of your paychecks in increments. But as Aetna points out, it’s essentially a credit system: you can spend more than what’s actually in your account, as long as it’s less than what you have committed to deposit by the end of the year.

With an HSA, you can only spend what you have already deposited. If there is not enough in your HSA to cover a certain expense, however, you can pay in a different and fair way. to reimburse yourself from your HSA later – there is no time limit to file a refund request. You can also earn interest on and even invest your HSA funds; FSAs have no capacity.

While it may appear that HSAs have a clear advantage over FSAs, choosing the best one depends on personal factors. Maybe your employer contributes to FSAs, but not to HSAs; or maybe you and your dependents spend a lot of time in the doctor’s office and one HDHP just isn’t right for you.