HSA vs FSA

Written by benefitexpress | August 14, 2015
Confused by Health Saving Accounts (HSA) and Healthcare Flexible Spending Accounts (FSA)? You aren't the only one. At first glance, they appear to be very similar, they both help with healthcare expenses and are tax free, but there are some vast differences between the two such as eligibility, contribution limits, and rollover, among others.

Eligibility

So you've just enrolled in Medical and are looking to add a spending account to your benefits. Well, for starters, HSA's are only available to those who have enrolled in High Deductible Health Plans (HDHP) and aren't covered by any other medical plans, including Medicare. FSA's are available to anybody enrolled in a Medical Plan. You cannot be enrolled in an HSA and FSA at the same time, so determine which plan best suits your needs.

Contribution

FSA's have a strict 2015 contribution limit of $2,550. HSA contribution limits are dependent on the coverage tier of the HDHP that you enrolled in. The individual HSA limit is $3,350 and the limit if enrolled in a family coverage tier $6,650. HSA's are also unique in the fact that employees above the age of 55 can add an additional "catch up" contribution of $1,000, even if they are at the contribution limit.

FSA's are solely funded by the employee, and they can access the money in the account before it is paid in, but the account is owned by the employer. HSA's are owned by the employee with contributions from the employer and the employee. The amount the employer pays per paycheck is dependent on how much the employee funds. Unlike FSA's, HSA money can only be accessed when it is paid into the account.

Contributions for FSA's can only be changed during Open Enrollment and after qualifying life events, such as: marriage, birth, divorce, or a spouse losing coverage from their employer. HSA contributions can be changed at any time.

Expenses

Expenses paid by both accounts are very similar. You can use these accounts to pay for prescription medication, co-pays, deductibles, and other qualified health expenses. You can find the list of eligible expenses here - www.irs.gov/publications/p502. The money contributed to either account is tax free!

Neither account can be used for non-eligible expenses. HSA's come with a strict penalty if the funds are used for non-eligible expenses and you are under the age of 65. The penalty will be your normal income tax, plus another 20% tax penalty.

Termination

Because FSA's are technically owed by the employer, all funds not spent in an FSA account are forfeited during the event of termination. The funds in an HSA are not forfeited after termination and can even be carried over to a new employer.

Rollover

In 2015, up to $500 of unused 2014 FSA funds could be rolled over, provided the employee did not go over the contribution limit. Any unused funds other than the $500 rollover will be expired and forfeited at the end of the year. HSA's never expire and any funds in the account will roll over.

Limited Purpose FSA's

Limited Purpose FSA's are similar to regular FSA's, the difference being that the only eligible expenses for this account are dental or vision expenses. Because of this, some employers allow employees with Limited Purpose FSA's to also have HSA's as well.

For more info on Tax-Favored Health Plans, check out www.irs.gov/pub/irs-pdf/p969.pdf.

Read more about HSAs: The Fundamentals of a Health Savings Account.

Topics: Health & Wellness