FSA vs. HSA: What’s the Difference?

This article has been updated to reflect 2019 rates.

There are many benefits you can choose to offer your employees. Flexible spending accounts (FSA) and health savings accounts (HSA) are both great healthcare plans that reduce an employee’s income tax liability and let them pay for medically-related expenses. It’s important for employees and employers to understand the difference between FSA vs. HSA.

What are FSA and HSA plans?

FSA and HSA plans are like personal savings accounts. However, the funds in the accounts can only be used for qualifying medical expenses.

The two plans work similarly. An employee determines the amount they want to contribute to their account. Because the funds are deposited into the account on a pre-tax basis, employees reduce their tax liability.

You might choose to offer both an FSA and HSA, depending on the health insurance plan your employees have. Employers are not required to contribute to an employee’s FSA or HSA plan, but you can if you want.

What can funds be used for?

Account holders, their spouses, and dependents use the funds in the holder’s plan to pay for qualifying medical expenses. Regardless of if the employee has an FSA or HSA, the following are eligible expenses:

After an employee pays for an eligible expense, they can receive distributions from their HSA or FSA plan.

For a full list of medical expenses account holders can use their FSA or HSA funds on, view the IRS’s Publication 502, Medical and Dental Expenses.

What’s the difference between HSA and FSA?

Though there are many similarities between the two plans, there are significant differences between an HSA vs. FSA.

Here are some common questions about FSA versus HSA plans:

Find out the answers to these questions in the chart below. Using this chart, you can compare HSA vs. FSA plans to help you decide which is the best option for your small business and employees.

Depending on your business and the health insurance plan(s) you offer, you might only be able to offer an FSA. But, if you are eligible to offer either FSA and HSA plans, compare the two to see which is right for your business.

Advantages of FSA and HSA plans

Regardless of whether you offer an FSA or HSA plan, employees will benefit. Tax reduction and employee satisfaction are just two of the reasons you might choose to offer an FSA and/or HSA.

By reducing an employee’s taxable income, you also decrease your tax liability. As the employer, you need to make a matching contribution for FICA tax. The lower an employee’s FICA tax liability, the less you have to pay.

The majority of employees (57% according to one survey) heavily consider benefits before even accepting a job offer. When you offer an FSA or HSA plan, you can keep employees satisfied, reduce their tax liability, and reduce your employer taxes.

Thinking about offering an FSA or HSA plan to employees? Don’t get overwhelmed by your employer responsibilities. Patriot’s online payroll software lets you track your employees’ FSA and HSA deductions easily and accurately. Try it for free today!

Get more payroll tips, training, and news on our payroll blog.Payroll Blog Home