HSA vs. FSA: Which is Better?

HSAs vs. FSAs

Both provide a tax shelter for medical expenses, but HSAs are considered more flexible.

Impacts of the CARES Act

Significant changes apply to telehealth appointments and over-the-counter medical products.

Frequently Asked Questions (FAQs)

What are the qualified expenses for health accounts? What is covered by a flexible spending account? Can you have an HSA and an FSA at the same time?

Differences Between HSA and FSA

HSAs require a high deductible health plan, while there are no requirements for FSAs. Funds in HSAs can remain with you even if you change jobs, whereas FSAs do not follow you to your new job. There are contribution limits and carryover periods for both HSAs and FSAs.

Tax Benefits and Savings Potential

Both HSAs and FSAs offer the same upfront tax benefits – you can put money into the accounts and withdraw it to pay for medical expenses without paying taxes. However, HSAs provide much greater tax benefits and savings potential.

Which Is Right for You?

Generally, HSAs are more flexible. Pre-tax contributions lower your tax bill, and you can use an HSA to save money. You can also keep unspent funds. However, you must have a high deductible health plan. FSAs do not accumulate over time, and you can lose remaining funds at the end of the year. FSAs offer tax savings and budgeting for medical expenses, so if you are not eligible for an HSA, an FSA may be a suitable alternative.

Impact of the CARES Act on FSAs and HSAs

One major change applies to telehealth appointments. Under the CARES Act, patients with high deductible health plans paired with HSAs can receive telehealth appointments before meeting the minimum deductible. The second provision allows the use of over-the-counter medical products as qualified expenses for HSAs and FSAs, which was not available before the new law.

Frequently Asked Questions (FAQs)

What are the qualified expenses for HSA? What is covered by FSA? Can you have an HSA and an FSA at the same time?

Sources

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References:

• Centers for Medicaid & Medicare. “Health Savings Account (HSA).”
• IRS. “Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.”
• National Institutes of Health. “Flexible Spending Accounts Program—New 2022 Limits for the HCFSA and LEX HCFSA.”
• IRS. “Topic No. 502 Medical and Dental Expenses.”
• IRS. “Rev. Proc. 2021-25,” Page 1.
• IRS. “IRS Provides Tax Inflation Adjustments for Tax Year 2022.”
• IRS. “Notice 2021-15.” Pages 13-14.
• Optum Bank. “IRS 2022 FSA, Commuter Benefits and Adoption Assistance Contribution Limits.”
• Consumer Healthcare Products Association. “FAQs About HSA/FSA Accounts and the CARES Act.”
• IRS. “Notice 2021-15,” Pages 1-3.
• Federal Flexible Spending Account Program. “Eligible Health Care FSA (HC FSA) Expenses.”

Source: https://www.thebalancemoney.com/differences-between-hsa-and-fsa-and-best-options-4156726