HSA vs FSA: What’s the Best Option


WRITTEN BY: Craig Sturgill

UPDATED: JULY 26, 2022 | 3 MIN READ

Even if you have good health insurance, there are bound to be expenses you have to pay. This can include deductibles, prescriptions and medical supplies that aren’t covered, and a co-pay. Luckily, some accounts let you pay these expenses tax-free – a health savings account (HSA) and a flexible spending account (FSA). Let’s compare HSA vs. FSA to see which suits you better.

What is an HSA?

An HSA is tax-free savings account specifically for health-related purchases. The money deposited into your account is deducted from your gross wages before taxes are computed. This lowers the amount of tax you have to pay. Your employer may also contribute to the account on your behalf. 

You own an HSA account, and only you can make purchases. However, the money in an HSA may only be used for healthcare expenses not covered by your health insurance policy.

A true HSA can only be opened if you have a high deductible health plan (HDHP). This type of health plan has specific requirements set by the federal government. The HSA is set up to help offset some of your out-of-pocket health-related expenses.

Benefits of an HSA

One of the main benefits of having an HSA is that the money deposited into the account is tax-free. This offsets some out-of-pocket expenses, which is nice when you have an HDHP. 

However, you need to remember that there are annual limits for HSA contributions, and the money in the account can only be used on hSA-eligible health-related expenses. 

Another huge difference between an HSA vs. FSA, and a significant benefit of an HSA, is that the funds in your HSA account roll over annually. With an FSA, you lose any funds you don’t use by the deadline.

Contributing to an HSA

Once you have an HSA, take the paperwork to your employer to have money deposited into the account. You can contribute up to $3,650 per year if you are single and up to $7,300 yearly for a family. 

It’s up to you to decide how much you want to come from each paycheck. You must notify your employer if you need to change the amount you contribute.

HSA-eligible expenses

HSA-eligible expenses include, but are not limited to:

  • Deductibles for your insurance policy
  • Dental services (although cosmetic dentistry may not be included)
  • Eye doctor appointments and any prescription eyewear to correct your vision
  • Medical equipment such as crutches, CPAP machines, or ostomy bags
  • Over-the-counter medicine
  • Feminine hygiene products
  • Prescription medications not covered by your insurance or prescription co-pays

If you have an out-of-pocket expense that has anything to do with your health, check the terms of your HSA to see if it’s covered.

What is an FSA?

An FSA is a savings account you contribute to from your pre-tax income. Your employer holds the account, so if you change jobs, you lose any funds in the account. 

The main difference between FSA vs. HSA accounts is that your employer owns an FSA, and the funds don’t roll over each year, while you own an HSA, and the funds do roll over annually.

Benefits of an FSA

With an FSA, you can only contribute up to $2,750 annually for healthcare, but you can also contribute $5,000 per year for dependent care. Dependant care contributions aren’t allowed with an HSA. You can use these funds to pay for daycare or adult care costs.

Contributing to an FSA

You must choose how much you want to contribute to an FSA each payday on or before the first paycheck of the year. Once this amount is set, it’s automatically deducted from your pre-tax wages. Your employer may also make contributions on your behalf.

FSA-eligible expenses

FSA vs. HSA-eligible expenses is pretty much the same as average healthcare costs. The dependent care portion of your FSA can be used for:

  • Daycare programs
  • Summer camp programs
  • Housekeeping expenses related to dependent care
  • Adult daycare
  • Adult care programs

You may ask your employee for a list of eligible expenses for the healthcare and dependent care portions.

HSA vs. FSA Comparison

When comparing, it’s best to note the differences between the two.

  • You own an HSA and may keep the account if you leave your employer. Your employer owns an FSA. You forfeit any funds in it if you change jobs
  • Funds in an HSA roll over annually. With an FSA, you lose any funds not used for the year.
  • An FSA has two portions, one for healthcare expenses and the other for dependent care expenses. An HSA does not pay for dependent care expenses.
  • An HSA requires you have an HDHP. An FSA doesn’t.
  • Annual contribution limits are higher for HSAs than they are for FSAs.

Can you have an HSA and an FSA?

Yes, it’s possible to have both an FSA and an HSA as long as your health insurance is an HDHP. Your employer will hold the FSA, and you will hold the HSA.

Is an HSA or an FSA the better option for you?

If you do not have to pay any dependent care, an HSA is usually the best option. However, you have to have an HDHP to have one. If you don’t, an FSA is your only option. 

FAQs

Is it better to have an HSA or an FSA?

You must decide how much money you spend on healthcare and dependent care each year. Then, you can choose whether an FSA vs. HSA is better for you. Remember that an FSA is not truly yours, and you will forfeit the money if you change jobs or do not use it all each year. Also, if you don’t have an HDHP, you don’t qualify for an HSA.

Why would you choose an FSA over an HSA?

You can only have an HSA if you have an HDHP. If you don’t, you have to choose an FSA. You might also choose an FSA over an HSA if you pay for dependent care.

Is HSA always the best option?

No. HSAs aren’t the right choice for everyone. They aren’t even available to everyone. You need to make financial decisions based on your and your family’s needs.

Is an FSA worth it for a healthy person?

With an FSA, you may have funds deposited for dependent care, health care, or both. If you are healthy, you may consider only utilizing the dependent care portion of the account.

Is HSA worth it for a healthy person?

An HSA can be very beneficial for a healthy person. Since the funds in the account roll over and accumulate from year to year – and earn interest – you might appreciate having decent savings available if your health needs increase later in life.

Get Help Deciding Between an HSA and FSA

Even when you have a good healthcare insurance plan, out-of-pocket expenses will come. Both an HSA and an FSA can be used to pay them and are funded with pre-tax wages. But the first step is getting the right health insurance. Get health insurance quotes now to choose the best plan for you. Then, determine if you qualify for an HSA vs. FSA.