Paying hospital bills is never fun. But paying hospital bills TAX-FREE makes it a little better. How is that possible? Well through either an HSA or FSA.
Both help you save money and cover health care costs through tax-advantaged accounts. But there are some major differences between the two accounts.
HEALTH SAVINGS ACCOUNT (HSA)
Health Savings Accounts are used to pay for qualified medical expenses tax-free.
HSAs are available for individuals with a high-deductible health plan (HDHP). A $1,400 deductible for individuals or $2,800 for family plans is the minimum deductible amount to qualify. You do not qualify for an HSA if you’re enrolled in Medicare or claimed as a dependent on another person’s tax return.
You can open an HSA through a bank or vendor if your employer does not offer an HSA as a benefit.
FLEXIBLE SPENDING ACCOUNT (FSA)
Flexible Spending Accounts are also used to pay for qualified medical expenses tax-free. However, the FSAs are employer-sponsored accounts so you can only use this account if your employer offers it as a benefit.
There are no other restrictions for having the account. But, ironically, there are some cons that make these accounts less flexible than an HSA.
HSA VS. FSA COMPARISON CHART
| HSA | FSA | |
| Qualifications | Only people with an HDHP can qualify. You cannot be enrolled in Medicare or be claimed as a dependent on someone’s tax return. | No requirements, but only available to those who are offered one as an employee benefit can have an FSA. |
| Rollover Rules | All unused funds roll over every year and can be saved in your account long-term. | Typically, FSAs are a use-it-or-lose-it situation. You may have the option to roll over $570 to the next plan year or have an additional 2.5 months to spend the previous year’s contributions. |
| Annual Contribution Limits | The 2022 limit is $3,650 for individuals and $7,300 for families. | The 2022 limit is $2,850, but the employer has the ability to set the limit lower. |
| Changes to Contributions | Yes, you can change the contributions throughout the year, as long as contributions are below the annual limits listed above. | Changes can only be made during enrollment unless you have a qualifying life event, or you change your plan/employer. |
| Long-Term Savings | Yes | No |
| Changes to Employers | Even if the HSA is employer-provided the account belongs to you and follows you wherever you go. | FSAs do not follow you to your new employer, so any unused money is forfeited. Unless you have COBRA coverage allowing you to keep the FSA. |
| Available for Self-Employed Individuals | Yes | No |
| Tax Savings | Contributions can be made pre-tax directly from your paycheck or you can contribute after-tax dollars and then receive the “pre-tax” benefit when filing your tax return as a tax deduction. Contributions grow tax-free and accumulated savings can be withdrawn after age 65 like a traditional IRA. Distributions are tax-free as long as the funds are used for qualified medical expenses (see the list below). | Both contributions and distributions are tax-free as long as the funds are used for qualified medical expenses (see the list below). Contributions are typically made pre-tax directly from your paycheck. |
QUALIFIED MEDICAL EXPENSES
Below is a list of common IRS-qualified medical expenses:
- Acupuncture
- Ambulance
- Artificial limbs
- Artificial teeth
- Birth control treatment
- Blood sugar test kits for diabetics
- Breast pumps and lactation supplies
- Chiropractor
- Contact lenses and solutions
- COVID-19 diagnostic testing and treatment
- Crutches
- Dental treatments (including X-rays, cleanings, fillings, sealants, braces and tooth removals)
- Doctor’s office visits and co-pays
- Drug prescriptions
- Eyeglasses (Rx and reading)
- Fluoride treatments
- Feminine hygiene products
- Fertility enhancement (including in-vitro fertilization)
- Flu shots
- Guide dogs
- Hearing aids and batteries
- Infertility treatment
- Inpatient treatment at a therapeutic center for alcoholism or drug addiction
- Insulin
- Laboratory fees
- Laser eye surgery
- Medical alert bracelet
- Medical records charges
- Midwife
- Occlusal guards to prevent teeth grinding
- Orthodontics
- Orthotic Inserts (custom or off the shelf)
- Over-the-counter medicines and drugs:
- Acid controllers
- Acne medicine
- Aids for indigestion
- Allergy and sinus medicine
- Anti-diarrheal medicine
- Baby rash ointment
- Cold and flu medicine
- Eye drops*
- Feminine antifungal or anti-itch products
- Hemorrhoid treatment
- Laxatives or stool softeners
- Lice treatments
- Motion sickness medicines
- Nasal sprays or drops
- Ointments for cuts, burns or rashes
- Pain relievers, such as aspirin or ibuprofen
- Sleep aids
- Stomach remedies
- Personal protective equipment (PPE) like masks and hand sanitizer
- Physical therapy
- Psychiatric care
- Psychoanalysis
- Psychologist
- Special education expenses that include tutoring for a child with learning disabilities caused by mental impairments (recommended by doctor)
- Speech therapy
- Stop-smoking programs (including nicotine gum or patches, if prescribed)
- Surgery, excluding cosmetic surgery
- Vaccines
- Vasectomy
- Vision exam
- Walker, cane
- Wheelchair
This list does not guarantee reimbursement or qualification as there are frequent updates and regulations governing these accounts. This list is only to be used as a guide for the submission of claims. Always refer to your Plan Document for confirmation of reimbursable expenses under your specific plan.
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