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FSA vs. HSA: What’s the Difference?

tac benefits with fsa vs. hsaFlexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) are both great ways to reduce your income taxes by paying for medically-related expenses with pre-tax money — that is, money deducted from your paycheck before income taxes are calculated on your pay.  Both types of accounts work similarly, in that you can deposit pre-tax money into the account, and use the account to pay for various tax-deductible medical expenses as they occur. But the two types of accounts operate quite differently.

Some companies offer both an FSA and HSA option for the employees on their small business payroll, depending on which health insurance plan they select.  Compare the options between FSA vs. HSA  below:

  • Eligibility to Contribute
  • FSA

    Eligibility is set by your employer.  If you have a high-deductible health insurance plan, you may only contribute to a “limited purpose” FSA used for dental, vision, and other non-medical expenses.

  • HSA

    You are eligible if you have a high-deductible health insurance plan that meets IRS definitions. For 2015, the single deductible needs to be at least $1,300 and family deductible at least $2,600.

  • Annual Contribution Dollar Limits
  • FSA

    Beginning in 2015, the IRS has set the limit at $2,550. Your employer may set a lower limit.

  • HSA

    In 2015,the IRS has stated the single coverage limit is $3350 and the family coverage limit is $6650.

  • Account Ownership
  • FSA

    Your FSA account is set up and owned by your employer.

  • HSA

    The HSA account is a bank account owned by you, regardless of where you work.

  • Access to Your Money
  • FSA

    You have access to your entire annual election amount any time during the year, even if you have not had all of the money deducted yet from your check.

  • HSA

    You only have access to what has actually been deposited into your HSA to date, like any other bank account. If you have a big claim and don’t have enough in your HSA to cover it, you will need to pay for the cost out-of-pocket, and reimburse yourself later as more funds are deposited.

  • Use It or Lose It
  • FSA

    Maybe. The employer has three options: (1) state that any money you do not spend in your FSA at the end of the year is forfeited back to the company, (2) allow up to $500 to rollover to the following year, or (3) give a maximum grace-period of two-and-a-half months after the year ends to use any leftover funds.. On the flip side, if you happen to leave before the year is over, and you’ve already spent more FSA money than what has been deducted from your paycheck, the excess money does not need to be returned.

  • HSA

    No, any unused funds in your HSA at the end of the plan year are yours to keep, and stay in your account indefinitely until you spend them.

  • Substantiation
  • FSA

    Your employer or FSA provider may ask you to prove that the money spent was eligible, by submitting a copy of the receipt.

  • HSA

    Your employer or HSA provider does not “police” the account, but it’s important that you keep all receipts and documentation for your records in the event of a personal IRS audit. Report annual contributions and distributions on IRS Form 8889.

  • Option to Change Contributions
  • FSA

    You can only change your election amount if you experience certain qualifying events such as marriage, divorce, birth of a child, etc.  Otherwise you are “locked in” until the next open enrollment.

  • HSA

    You can change your election amount on a monthly basis, as long as it does not exceed IRS limits, and the amount is in proportion to the number of months you were covered under a high-deductible health plan.

Updated 3/3/2015 -to reflect new limits and laws.

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