5 Important Differences Between FSAs and HSAs
Healthcare can be expensive, which is why having the right benefits can make such a big difference! But it’s not always easy to browse benefits programs without a little expert guidance. That’s where we come in — whether you’re an employer trying to find the best benefits for your team, or an employee trying to educate yourself on the benefits package you already have, we’re here to help.
With that in mind, let’s talk about FSAs vs HSAs. Flexible spending accounts (FSAs) and health savings accounts (HSAs) are both great ways for employees to save on the cost of medical care, but what’s the difference between these two tax-advantaged programs? Here’s are 5 key differences we think you need to know:
Before we get ahead of ourselves, let’s answer the most important question: which program do you qualify for?
In the case of FSAs, eligibility requirements are fairly simple: in order to qualify, you simply have to be the employee (or employer) of a company that offers an FSA. Technically, you don’t even need to have health coverage to qualify, though we don’t recommend going that route, if you can avoid it.
For HSAs, eligibility is slightly more complex. First and foremost, you must be covered under a qualified high-deductible health plan (HDHP). You also must be at least 18 years of age, and cannot be enrolled in Medicare or claimed as a dependent on someone else’s tax return. Outside of that, though, HSAs are fairly accessible.
2. Account owner
As mentioned above, in order to qualify for an FSA it must be offered through your employer, so technically, your employer owns your account. That means if you switch jobs mid-year, you’ll likely lose your FSA, unless you are eligible for FSA continuation under COBRA.
An HSA, on the other hand, has no connection to your employer, so even if you change jobs, your HSA can come with you. That also means you can contribute to an HSA regardless of employment status, so long as you have an HDHP.
3. Access to Funds
Here’s where it gets interesting. With an FSA, you elect a certain amount to be put aside every year, and that election amount is immediately available in its entirety, thanks to your employer. This can come in handy, for instance, if you know you’re going to use it to cover an eligible surgery early in the year. Although the money itself will be taken out of your paycheck as the year goes on, you will always have access to the full amount you elected.
With HSAs, on the other hand, you can only access whatever has already been put into the account. That means if you have an expense coming up, you’ll have to make sure the correct amount has been put in before you can use your HSA to cover it.
4. Contribution Limit
Because of coronavirus, the contribution limits for both FSAs and HSAs has been raised this year. The annual limit on FSAs will be $2,750 this year, a $50 increase from last year’s maximum contribution.
The annual limit on HSAs for 2021 will be $3,600 for individuals and $7,200 for family coverage. That’s $50-100 more than last year!
This is one of the bigger differences between the two programs. With FSAs, you’re not guaranteed any rollover — that being said, many employers try to make your FSA as easy to spend as possible, so carryovers of up to $550 are possible this year, if employers approve them. In general, it’s best just to budget as well as you can — and if you happen to over-budget, there are plenty of basics you can spend that extra money on.
With HSAs, on the other hand, any unused balance rolls over into the next year, which is one of the biggest benefits to this program. That being said, you’ll have to budget your expenses either way — even if you have contributions rollover from one year to the next, it’s still important to calculate what you’ll actually need before you decide how much to contribute.
The fact of the matter is, in most cases, you won’t have to choose between an FSA and an HSA: the decision will be made for you based on your employer and your insurance deductible. That being said, I hope this cleared up the questions some of you may have had!
If you have any more questions about how an FSA can benefit your employees, please don’t hesitate to reach out at email@example.com.