To put it more simply, FSAs operate like a line of credit. Health savings accounts (HSAa) and flexible spending accounts (FSAs) are two fringe benefits offered by some employers that allocate pre-tax dollars for special purposes. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. The HSA is set up to help pay for healthcare upon retirement. To help you make an informed decision, we’re taking a look at the benefits and differences between Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA). editorial integrity, this post may contain references to products from our partners. Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate.com does not include all companies or all available products. Bankrate.com is an independent, advertising-supported publisher and comparison service. A health insurance premium is an upfront payment made on behalf of an individual or family in order to keep their health insurance policy active. They allow you to keep your family protected while also saving you money. The biggest difference between the two is the fact that not everyone qualifies for an HSA. FSA vs HSA – What’s the difference? They are meant to be a savings account. eye examination, eyeglasses), Prescription medications and over-the-counter treatments. Explore the benefits of popular coverage options to find out which one offers the biggest value for money. If you have a high-deductible health plan, you will have to enroll in an HSA. Money in an FSA usually can’t be invested… it doesn’t earn you significant interest. The Profile of Employees Who Usually Open an FSA. The main benefit of both is that you can save on taxes by opting to put part of your pay towards one of these tax-advantaged accounts. A Health Savings Account (HSA) is an account for individuals with high-deductible health plans to save for medical expenses that those plans do not cover. HSA HEALTH CARE FSA What is it? Her HDHP makes her eligible for an HSA, but Sally can also take advantage of something else: a type of FSA known as a Limited Purpose FSA (LPFSA.) Unlike with an FSA, the account balance on your HSA rolls over from one year to the next. If you establish an FSA, just keep an eye on the account to make sure you don't let any accrued money expire at the end of the year. A withdrawal from an HSA can be used for a broad range of medical expenses including eyeglasses, contacts, chiropractic care, and prescription drugs as well as doctor visits and hospital stays. We do not include the universe of companies or financial offers that may be available to you. Use it or lose it — unless your employer allows a rollover, which is typically capped at $500/year. We value your trust. An employee savings plan is an employer-provided tax-deferred account typically used to save for retirement, such as a defined contribution plan. FSA funds have an annual expiration date, but HSAs’ benefits grow with you over time. However, as a result of COVID-19 the rollover amount has increased to $550 and has a longer grace period if the employer chooses to allow it. Use our chart to get quick answers to all of your questions relating to FSA and HSA plans. More Qualifications to Set Up an HSA vs FSA. Once the account is set up, an employee can contribute additional money to the HSA via a payroll deduction from gross income. Chloe A. Moore. All employees are eligible regardless of whether they have insurance or not. While FSAs and HSAs are both tax-incentivized plans in which you can set aside money for qualified medical expenses, the main differences are in eligibility, contribution limits, and rollver capabilities. The money contributed to an HSA account is made with pre-tax dollars and, therefore, reduces the amount of income reported for tax purposes. Our editorial team does not receive direct compensation from our advertisers. The IRS tax code refers to the term “medical care” as “amounts paid for diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body.”. The HDHP must be your only health care plan. Some employers allow you to rollover up to $500. Under the Section 125 plan a.k.a the cafeteria plan, employees are offered benefits to utilize that can be either pre-tax or excluded from their gross income. At a high level, FSAs and HSAs are very similar in the sense that they both allow people to set aside money for health care costs. It can feel a bit stressful as there’s a lot to consider and weighing your options can be overwhelming. Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Or they give you a grace period of as much as two months and 15 days to … We’re going to help you … To be FSA or HSA eligible you have to meet specific guidelines. HSAs have higher contribution limits and funds not spent in a given year roll over to the next year, but an HSA is only available to members … At Bankrate we strive to help you make smarter financial decisions. Contributions to HSAs are made with pre-tax dollars and are associated with high-deductible health insurance plans to help defray some of the costs of the high deductible, and can be rolled over each year. 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