Whether you’re a seasoned insurance user or a spring chicken just starting out, the fine details of FSA and HSA can easily become muddled. Stay with us as we unpack how the accounts are similar, and how they’re unique.

FSA

A flexible spending account (FSA), otherwise known as a flexible spending arrangement, is an account you can open if you have a health plan through your job. You can put tax-free money into this account to cover certain health care costs, like medical and dental expenses, or even prescription eyewear. Discover more about eligible and ineligible expenses here. Some employers even contribute to your FSA, though they’re not required to.

HSA

You can qualify for a health savings account (HSA) if you’re enrolled in a high-deductible health insurance plan (HDHP), which is defined by the IRS each year. Without exceeding government-mandated maximums, you choose how much money you want to contribute to your HSA. Whether you set up automatic payments from your payroll or contribute to the account individually, you can spend your money using a debit card or checks linked to your HSA.

Similarities between FSA & HSA

  • Both accounts function as a way to set aside money for health care costs.
  • Medical expenses you can use the accounts for have the same eligibility requirements.
  • You will receive tax benefits from both accounts.

Differences between FSA & HSA

  • Whereas you can open a HSA on your own, FSAs are only available through a benefits package from your employer.
  • You can contribute more money to a HSA than a FSA.
  • You can only adjust your contribution to a FSA during open enrollment or a change of status, and you can contribute to your HSA at any time throughout the year.
  • Your FSA contribution is all available at the start of the year, while your HSA funds are added to your account as they’re deducted from your paycheck.
  • If you don’t use the money in your FSA within the year, you lose it (unless your employer offers a grace period). Your HSA balance rolls over from year to year.
  • Since you don’t need to be employed to use a HSA, the account will follow you as you change employment, as long as you have a HDHP. You’ll lose your FSA if you change jobs, unless you are qualified to continue with COBRA.
  • When it comes to tax benefits, contributions to a HSA are tax-deductible and can also be taken from your payroll pretax. Contributions to a FSA are pretax, and distributions are untaxed.

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