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What is the difference between an FSA and an HSA?

Learn what these two tax-advantaged account types have in common and what differentiates them, so you can make the best choice for your healthcare spending and saving.

 Jul 07, 2024

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Flexible spending accounts (FSAs) and health savings accounts (HSAs) are tax-advantaged accounts that help consumers pay for eligible out-of-pocket medical expenses not covered by insurance.

The main differences between an FSA and an HSA are who owns the account and if/when funds expire. FSAs are owned by an employer, and any unused funds must be forfeited back to them at the end of the year (or end of the grace period) or when an employee leaves the company. HSAs, on the other hand, are owned by the consumer, or employee. Any funds contributed to the account — whether by consumers themselves or their employer — are theirs to keep for life.

What are the benefits of FSAs and HSAs?

Healthcare costs in the U.S. continue to rise, with consumers shouldering more of the costs of their care. FSAs and HSAs can help make a consumer’s predictable annual medical expenses more affordable by using pre-tax dollars to pay for them.

How do I know if I am eligible for an FSA or HSA?

Anyone is eligible for an FSA, if their employer offers one. Because FSAs aren’t quite as flexible as HSAs, they are often prepared with more traditional health plan like a PPO.

To be eligible for an HSA, consumers must be enrolled in an HSA-eligible high-deductible health plan (HDHP) through their employer.

What can I use my FSA and HSA for?

Consumers can use their FSA or HSA funds on out-of-pocket medical expenses not covered by their insurance. Typically, consumers receive a benefit debit card with which to make these purchases. Eligible items include:

  • Doctor’s office visits
  • Medical treatments
  • Diagnostic tests and lab fees
  • Medical devices
  • Vision care
  • Dental care
  • Prescription medications
  • Pharmacy items
  • Certain wellness items

Consumers can also visit online sites like shopwealthcare.com to purchase exclusively FSA- and HSA-eligible items.

FSAs vs. HSAs

Both FSAs and HSAs are tax-advantaged savings vehicles that help pay for out-of-pocket medical expenses. The two accounts have some similarities and many differences, as noted in the chart below. To view this year’s IRS contribution limits for both types of account, click here.

 

FSA HSA
Your employer owns the account. You own the account.
You elect an annual amount and fund the account through pre-tax withholdings from your paycheck. Employers sometimes contribute funds as well. You elect an annual amount and fund the account through pre-tax withholdings from your paycheck. Employers sometimes contribute funds as well, a process known as employer seeding.
You have immediate access to the annual amount elected. For example, if you elect an annual amount of $2,000, that full amount is available at the start of the plan year. Funds become available as you or your employer contribute them. For example, if you elect an annual amount of $2,000 to be withdrawn from your paycheck in $83 increments, you will have access to only $83 after your first paycheck.
Your employer determines what funds can be used for, which typically includes eligible out-of-pocket medical expenses not covered by insurance. You can use funds on any eligible out-of-pocket medical expenses not covered by insurance.
You determine the election amount during the annual open enrollment period and can only change that amount in the case of a qualifying life event, such as a marriage or the birth of a child. You can adjust your election amount at any time.
Your employer receives any unused funds at the end of the year (if no rollover policy is in place) or when you leave the company. You own your HSA funds for life. These funds can build up over time for long-term healthcare savings and for use in retirement. You can withdraw funds at any time without penalty, as long as they are used on eligible items.

 

Interested in learning more?

Check out our “HSA vs. FSA” comparison video.

Watch in English  |  Watch in Spanish