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HSA vs. FSA: What's the difference? |
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What's the difference between a flexible spending account and a health savings account?
Healthcare expenses can be covered by accounts established as part of the Federal insurance system or ones that have a deductible. To qualify for an HSA, you must have a high deductible insurance policy. Since FSAs and HSAs are both pre-tax accounts, you can pay for things such as out-of-pocket expenses and co-payments with them.
An FSA is similar to a line of credit. For example, if you do have $50 in January but want to purchase a $200 pair of eyeglasses, you can as long as you're on track to save at least $200 by the end of the year. You're protected, but you must really use it while the fiscal year is still going on each month or you could lose it.
Instead of having to spend on premiums, the money that you save with the HSA always stays with you. Remember you have to invest only the money that you have already saved.
What's an HSA, and why should you have one?
Like most US citizens, Michele Hosner has a very high-deductible health plan (HDHP). She enjoys the low monthly premiums and would like to spend her savings on her deductible and other medical expenses that may crop up. That's why she’s a big fan of her health savings account (HSA).
The mother of two from Pittsburgh uses the HSA for her deductible, prescriptions, and routine expenses such as over-the-counter allergy medicine. When her toddler suffered a light injury, Michele was able to use the account to cover an unexpected emergency room visit. I’m glad I had the set aside to pay for this, she states.
What is an HSA?
Michelle is one of the growing numbers of people taking advantage of HSAs. Paired with a qualified HDHP, an HSA lets you use pre-tax earnings to deposit a federally insured savings account. You can use the funds to pay for current medical care or save for the future. Your Health Savings Account belongs to you, and the funds in your account remain by you from year to year through job changes and into retirement.
HSA owners still have a great deal of opportunity to use their accounts to the fullest extent. Many people that offer HSAs don t understand everything they can do for them, says Michael DiSimone, CEO of PayFlex, a part of the CVS Health family of companies and a company with benefits for over 30 years.
An HSA is different from an FSA
HSAs were recently introduced to the public in 2004. They're frequently confused with FSAs, flexible-spending accounts, which go as far back as the 1970s. FSAs also offer the opportunity to use pre-tax dollars, usually deducted from your paycheck, for medical expenses. But often, FSA takeaway money must be used by the beginning of the following year, or you risk losing it.
While HSA contributions are not refundable, you may use the money for tax purposes and spend it on out-of-pocket health care expenses or long-term care expenses you may have in the future.
The benefits of HSAs
The maximum contribution for an individual in 2022 is $3,650, while loved ones can contribute up to $7,300. And people in 2022 can contribute a further $1,000 to their HSA each year. HSAs have a threefold tax benefit. Money goes into the HSA in pre-tax funds, reducing your taxable income. for those who are eligible for qualified expenses. And if you're an HSA user, your earnings are also tax-free. This is a great alternative for saving money for the future, DiSimone states.
What types of health care expenses are HSA eligible for?
HSA-eligible expenses may surprise you. Aside from covering the cost of doctors' visits, prescriptions, and coinsurance, HSAs can also be used to pay for other expenses, including general health-related expenses.
- First aid and health monitoring supplies: bandages, compression socks, blood pressure cuffs, and glucometers.
- Over-the-counter drugs include allergy medicine, cold medicine, and pain relievers.
- Tampons, pads, and other feminine hygiene products.
- Drug addiction treatment.
- Complementary treatments, such as chiropractor visits and massage.
- Glasses and contact lenses, and many vision supplies like safety goggles, sunglasses, and contact lens solutions.
- Many fertility and maternity services, including IVF, breast pumps, and breast milk storage bags.
- Your kids’ and other qualified dependents’ health expenses, even if they’re not on your health plan.
When you plan for your health circumstances or are interested in opening an HSA, you will want to understand the numerous benefits of HSA accounts. An HSA is a unique way to help you prepare, save, and pay for your well-being. If you have an HSA through PayFlex, your spouse age 55+, or children ages 18-26 can open their own HSA with PayFlex.
Key takeaways about HSAs and FSAs.
- Both accounts offer tax benefits and have annual contribution limits.
- You must have a high-deductible health plan (HDHP) to qualify for an HSA.
- Funds from your HSA roll over year after year.
- Some HSAs offer investment options.
- HSA holders cannot spend more than the funds that have been deducted from their paycheck. However, they can file for reimbursement later in the year.
- You can't contribute to an HSA and a traditional FSA in the same year. But HSA holders can contribute to an LPFSA for dental and vision expenses, and to a Dependent Care FSA for child care costs.
- FSAs work on a "use it or lose it" basis, meaning any funds not spent by the end of your plan year will be lost unless the plan has a grace period or rollover feature.
- You can use your FSA to cover eligible health care expenses early in the year, as long as you plan to contribute what's necessary to cover those expenses by the year's end.
- You contribute funds to an HSA and FSA, but only your employer can contribute to your HRA.
- With HRAs, employers may limit which health expenses are eligible and the amount you’re able to roll over from year to year.
Pro Therapy Supplies accepts HSA and FSA cards. For questions, you may call us at 770-441-9808 and we will be more than happy to assist you.
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