What’s The Difference Between FSA VS HSA Accounts?

Both a flexible spending account (FSA) and a health savings account (HSA) can provide individuals with access to tax-advantaged accounts to cover qualified medical expenses. However, there are significant differences between FSA vs HSA accounts, including contribution limits, account mobility, rollover limits, tax liability, and qualification requirements.

Choosing between an FSA vs HSA account can be challenging as a business owner or as an employee because there are benefits and drawbacks to both health accounts.

Fortunately, this guide will break down everything you need to know about FSA vs HSA accounts, including the differences between them and which one is best for you or your business.

What Is An FSA Account?

An FSA is an employer-owned health spending account used to reimburse an employee for qualified out-of-pocket medical expenses. FSAs are funded through an employee’s pre-tax wages, though employers may also choose to contribute. As employers own FSAs, employees who leave the company forfeit their FSA and its remaining funds.

The 2022 FSA contribution limit is $2,850. In the event that an employee doesn’t use the majority of their FSA fund, up to $570 can be carried over for use during the next coverage year or the entire amount can be carried over for use during the two months and 15 days carryover grace period. Any amount over $570 or any amount leftover after the grace period ends reverts back to the employer.

The Advantages Of An FSA Account

The Disadvantages Of An FSA Account

What Is An HSA Account?

An HSA is a triple-tax advantaged health savings account available to those covered under high deductible health plans (HDHPs). HSA funds can be used to cover qualified medical expenses, invested, or stashed away for future use. HSAs are privately owned, portable, and unaffected by changes in employment.

To qualify for an HSA, you must be covered under an HDHP, so your deductible must be at least $1,400 for self coverage and $2,800 for family coverage. Additionally, qualified HSA applicants must not be enrolled in Medicare, claimed as a dependent in the past year, and covered by any prohibited health plans.

The Advantages Of An HSA Account

The Disadvantages Of An HSA Account

What’s The Difference Between FSA VS HSA?

The differences between an FSA vs HSA include account ownership, the ability to invest funds, tax advantages, rollover limits, and qualification requirements. HSAs generally offer more benefits than FSAs, in that their funds can be invested, they are triple tax-advantaged, and there are no rollover limits. However, FSAs are more accessible.

Which Is Better: FSA Or HSA?

In the FSA vs HSA debate, the better option depends on your needs. For those looking to grow their health fund, don’t want to be tied to a single employer, and want triple-tax advantaged benefits, HSAs are better than FSAs. For those who want to set aside funds for their health expenses — and just that alone, FSAs are the better option.

While HSAs are harder to qualify for, both FSAs and HSAs involve risk. With an FSA, employees risk losing the money they’ve contributed to the account if they do not use it or they change employers. With an HSA, individuals risk having to pay a high deductible if they have not reached their contribution breakeven point.

Choose An FSA Account If…

• You currently have a low deductible health plan
• Your employer offers generous FSA contributions
• You don’t qualify for an HSA
• Your business wants to capitalize on FSA fund reversion

Choose An HSA Account If…

• You want to invest and grow your health fund
• You want sole ownership over your health accounts
• You want to maximize the tax benefits of your health account
• You are willing to risk paying a high deductible

Can You Use Both An FSA & HSA?

Yes, an individual can have both an FSA and HSA in certain circumstances. Employees can contribute to an HSA so long as they are covered under a high deductible health plan and one of the following situations apply:

• An employer offers a limited-purpose FSA, which can be used to reimburse employees for specific medical expenses.
• An employer offers a post-deductible FSA in which reimbursements are not made until the minimum annual deductible has been paid.
• An employee’s health FSA balance for the previous year is zero, and the plan is in its grace period.

Generally, while it’s possible to have both an FSA and an HSA, it’s far less complicated to choose one or the other. However, if medical costs are a concern, having and contributing to both accounts within the legal limits can extend your accounts’ functionality, as you may be able to cover costs that are typically not reimbursed with just one plan.

Should Businesses Offer FSAs Or HSAs To Their Employees?

Whether a business should offer FSAs vs HSAs comes down to the health plan coverage provided. FSAs can be offered regardless of your business’s health plan options. However, if your business’s current health plan options don’t meet the requirements for an HSA, namely the high deductible, then HSAs are functionally useless.

Businesses offering either HSAs or FSAs will save money and can improve employee satisfaction. Here’s how businesses can save money and help employees by offering FSAs or HSAs:

• Reduced health plan premium costs
• Reduced FICA tax liability
• Provide a helpful financial tool for employees
• Unused FSA funds revert back to the employer
• Employer HSA vs FSA contributions are attractive benefits

FSA VS HSA: The Bottom Line

Regardless of your stance in the FSA vs HSA debate, it’s undeniable that both health account options can help businesses and employees better navigate the financial challenges of paying for health insurance coverage.

For most businesses, FSAs and HSAs will help to reduce costs, with FSAs adding rollover fund reversion to the mix. However, employees stand to benefit more from HSA accounts, in that they can grow their wealth and reduce the risk of losing their savings accounts.

Whichever option you choose, health insurance options are among the best employee benefits to offer. With the current state of the US healthcare industry, health insurance benefits can go a long way toward improving employees’ quality of life.

HSA VS FSA FAQs