FSA vs HSA: What’s the difference?

Written by Mike Groe

Marketing & Brand Manager

Applied Business Solutions

November 18, 2021

Health Savings Accounts & Flexible Spending Accounts – Understanding their Differences

Both a healthcare Flexible Spending Account (FSA) and a Health Savings Account (HSA) provide the opportunity to save on your taxes through pre-tax contributions and help you save money on qualified medical, dental, and vision expenses. While similar, HSAs and FSAs offer different features and benefits.

Flexible Spending Accounts

Flexible Spending Accounts allow you to contribute pre-tax dollars on an annual basis to use for qualified medical expenses incurred within that year. This means that the funds you contribute to an FSA are “use it or lose it,” so it’s important to carefully calculate your expected medical claims when you enroll. If there are any unused funds in your FSA at the end of the year, you will be able to carry over $570 into next year, however any additional funds will be lost. The maximum you may contribute to an FSA in 2022 is $2,850.

Health Savings Accounts

In order to contribute to a health savings account, you must be enrolled in a qualified high deductible health plan. Unlike an FSA, the funds you contribute to an HSA are yours and never expire or go away. Funds in an HSA account must be used for qualified medical expenses, or tax penalties will apply. The maximum contribution to an HSA in 2022 is $3,650 for an individual and $7,300 for a family. If you enroll in an HSA, you cannot also contribute to a healthcare FSA.

Limited Purpose Flexible Spending Accounts

If you contribute to an HSA, you do have the option of also contributing to a limited purpose FSA. It works similarly to a healthcare FSA, however funds cannot be used for medical expenses. Funds in a limited purpose FSA can be used for other qualified expenses, such as dental or vision services.

FSAs and HSAs both offer the opportunity to set aside pre-tax money to help you save on your medical expenses, but work very differently. FSAs are less flexible than HSAs with the chance of losing unused funds while HSAs are only available to those enrolled in a high deductible health plan. Determining which plan works best for you is key to maximizing your benefits. 

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