Health Savings Account vs Flexible Spending Account
September 11, 2010
We recently covered the health savings account and have written about flexible spending accounts and in the past and thought it was time to take a look at health savings accounts vs flexible spending accounts.
Both can be useful tools for medical expense income tax deductions but one thing many people are unhappy with are flexible spending account deadlines and their “use it or lose it” policies. The health savings account does address that issue and also differs from a flexible spending account in other ways.
The table below compares eight different aspects of HSA and FSA accounts, hopefully that helps shed a little more light on the difference between the two.
|Health Savings Account (HSA)||Flexible Spending Account (FSA)|
|Account Ownership||Employee own the HSA account.||Your employer owns the FSA account.|
|Account Funding||The employee and others on the employee's behalf.||The employee funds the account.|
|Unused Amounts||The individual owns the account and can carry any unused funds over into the next year.||Unused funds remaining at the end of the year are forfeited to the employer. Some companies have a 3 month grace period.|
|Funding Method||Employee determines how much to contribute by pre-tax payroll deduction or by tax deductible contribution.||Employee determines how much to contribute pre-tax into the account.|
|Interest Accrual||Interest can accrue on a tax-free basis in eligible HSAs.||Interest does not accrue.|
|Catch-up Contributions||Until enrolling in Medicare, employees age 55 and older may contribute an additional $1,000 to their HSA each year.||Catch-up contributions are not allowed.|
|Tax Benefits||Contributions to the account are tax-deductible. Withdrawals for eligible medical expenses, as defined by IRC Section 213(d), are tax-free. Interest or investment earnings are also tax-free||Contributions are tax-free, reducing annual taxable income. Reimbursements are tax-free.|
|Eligible Expenses||Any otherwise unreimbursed medical expense (as defined under IRC Section 213 (d)) is eligible. Health insurance premiums cannot be paid from the account, with the following exceptions: any health insurance (other than a Medicare supplement policy) for a person age 65 or older, COBRA, long-term care, and health care while receiving unemployment compensation.||Any otherwise unreimbursed medical expense (as defined under IRC Section 213 (d)) is eligible. However, health insurance premiums and long-term care services are not reimbursable even though they are tax-deductible.|
|Account Integration||HSAs can be integrated with most limited-purpose flexible spending accounts (LP-FSAs); however, they cannot be combined with a |
|Standard FSAs cannot be integrated with HSAs.|
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