FSA and HSA: Alike but Different

Health Care Flexible Spending Accounts and Health Savings Accounts allow you to pay qualified out-of-pocket medical expenses with tax-free dollars. While both accounts offer tax benefits, they have some major differences.

Flexible Spending Account

A Flexible Spending Account (FSA) is a savings account established for you by your employer to pay out-of-pocket healthcare expenses, such as doctor copays, vision and dental expenses, and prescription drug costs, for you and your dependents. Contributions are deducted from your pay throughout the year, but the full amount is available to use immediately. For 2022, the annual contribution limit is $2,850. Any money left in the account at the end of the year is forfeited unless the plan has a grace period or a rollover feature. FSA funds don’t earn interest, and, if you leave your job, any money remaining in your account is returned to your employer.

Health Savings Account

Like an FSA, Health Savings Accounts (HSA) let you make tax-free contributions and withdrawals to pay healthcare expenses. But, to contribute to an HSA, you must be covered under a high-deductible health plan (HDHP)* You can’t spend more than you’ve contributed to the account, but you can ask for reimbursement later. Contribution limits in 2022 are $3,650 for individuals and $7,300 for families. Funds roll over from year to year, and the account may be portable if you change jobs. Some HSAs offer investment options but consider carefully before you decide to invest your healthcare savings.

*An HDHP is a plan with maximum out-of-pocket amounts of $7,050 for individuals and $14,100 for families.