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What is the difference between an HSA and an FSA?

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What is the difference between an HSA and an FSA?

HSA and FSA are two pre-tax medical expense payment accounts commonly used in the United States. Generally, the pre-tax salary is recharged to the account first, and then the funds in the account are used to pay for medical expenses.

Why do you want to do this, you might ask? Can’t you just pay directly?

The main reason for this is to save taxes. The income tax in the United States is very high. Through the HSA and FSA accounts, the medical expenses of the income can be deposited into the HSA or FSA account in advance, and this part of the income does not need to be registered. Pay income tax.

However, an HSA is completely different from an FSA. The biggest difference is that an HSA account is owned by an individual, while an FSA is owned by your employer. If you change jobs, the HSA will still follow you and the FSA account will be canceled.

So, should you choose a HAS account or an FSA account? Actually, in many cases, it is determined by your employer and the way you work.

What is an HSA?

An HSA, short for Health Saving Account, is a savings account that allows you to put your pre-tax income into a savings account to pay for your medical bills. Medical expenses are paid by using the tax-free funds in the HSA, but the HSA generally cannot be used to pay premiums (Premium).

There are more stringent requirements for opening an HSA account. You need to have HDHP (High Deductible Health Plan). The biggest feature of the HDHP medical plan is a high deductible, but the monthly medical insurance premium (Premium) is very low, so it is very suitable for young people and people who do not need to see a doctor often. At the same time, any preventive care (Preventive Care) is 100% paid by HDHP.

HDHP health insurance can be an HMO, PPO, POS, or EPO account, however, Deductible and Out-of-Pocket are very high.

Both company employees and self-employed persons can open a HAS account. Note that it is the individual who has the HAS account, not the employer. If a company employee leaves the company, the employee can take their account with them.

Company employees, employers, or both parties can deposit funds into the HAS account. These funds are available when they are deposited into the employee account, and employees can also change the HAS contribution amount at any time throughout the year, but there is a maximum annual cap, for example, in 2021, the maximum annual contribution of an individual is $3600, and the family is $7200.

If the funds in the HAS are not used up at the end of each year, they can be automatically transferred to the next year for use.

The funds in the HAS account, in addition to paying for medical expenses, can also be used to invest in stocks or mutual funds, and the investment income is also tax-free.

What is an FSA?

The full name of FSA is Flexible Spending Account, which is also an account that uses the pre-tax income to pay for medical expenses.

An FSA must be opened by an employer for you. Company employees or individuals cannot open an account by themselves, so self-employment (Self-employment) generally does not have an FSA account.

The FSA generally must be used up in the current year, and only $500 can be transferred to the next year, and the rest of the funds will be transferred to the employer.

If a company employee leaves within a year, the employer will forfeit the remaining FSA funds. An employee who leaves in the middle of the year must pay back the difference if the funds used from the account exceed the amount contributed.

What is the difference between HSA and FSA?

The difference between HSA and FSA is:

  • Account Eligibility: For HAS, you can open an account only if you have an HDHP medical plan. An account can be opened either by your employer or by yourself. The FSA must be provided by the employer to open an account.
  • Annual Contribution Limits: For HAS, individuals can contribute $3600 per year and families can contribute $7200 (The year 2021); for FSA, individuals or families can contribute up to $2750 (The year 2021).
  • Contribution changes: With an HSA, you can change the amount you deposit into your account at any time of the year. For FSA, you can only set it at the time of Enroll every year, unless your family situation changes, for example, you have a new baby.
  • The unspent amount for the current year: The unspent HSA account balance can be carried over to the next year. For FSA accounts, you lose the balance unless your employer allows an extension, up to a $500 limit.
  • Job Transfer: When you change jobs, the HSA account can follow you to the new company as long as you still have HDHP coverage. But the FSA is lost because of the transfer of your job. Continue to use your FSA account if you qualify through the COBRA program.
  • Use of account funds: In addition to paying for medical expenses, the funds in the HAS can also be used for investment, and any investment income is tax-free; while the funds in the FSA account can only be used to pay for medical expenses.


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