FSAs and HSAs

There have been several attempts to help consumers pay for healthcare in an affordable way. So you may be somewhat confused about the different types of accounts.

For instance, many employers today offer what’s known as a flexible spending account (FSA), to which you can choose to contribute part of your pretax salary. You then submit receipts for eligible expenses that you’ve incurred, including certain healthcare expenses, for reimbursement from your FSA. So while FSAs and HSAs have certain similarities, they are not the same.

	HSAs	FSAs

Eligibility	Individual, group, and employer-sponsored plans available	Offered only as a job benefit

Federal tax treatment of contributions	Pretax salary reduction or deductible from your income taxes	Pretax salary reduction

Rollover rights	Rollovers permitted, both directly and indirectly, though rules apply	Can’t roll over account value to new employer’s plan

Federal tax treatment of distributions	No tax due if used for qualified medical expenses. Taxed if used for nonmedical expenses, plus 10% penalty if younger than 65. Taxed but no 10% penalty for nonmedical expenses after age 65	No tax due if used for eligible medical expenses

Contribution limits	Your HDHP deductible or the federal maximum, whichever is less	Maximum level set by employer

Contribution timing and options	Your HDHP deductible or the federal maximum, whichever is less	Must commit to a specific salary reduction at start of plan year

When money is available	Available if it’s in the account	At the start of the plan year

Earnings	Tax-free earnings if used for qualified expenses	No earnings

Portability	You own the account and can take it with you if you switch jobs or health plans Can be rolled over into new HSA	Benefit tied to employer plan

Unused funds at year end	Remain in account	Forfeited if not used (In some plans there’s a grace period through March 31 to submit claims from the previous year, and through March 15 to incur new expenses.)

BACK