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Banking Basics

HSA vs. FSA Breakdown

Compare an HSA and FSA to figure out which one best suits your spending and savings needs.

Emily Clemens • June 18, 2021

A Health Savings Account (HSA) and Flexible Spending Account (FSA) are both options to help you stash money for qualified medical expenses. 

There are some major differences between the two. For example, an HSA is owned by the individual and offers a bit more flexibility. An FSA is managed by your employer and has some limitations. Keep reading to figure out which one you’re eligible for and which one suits your financial situation. 

In This Article

  1. What Are HSAs and FSAs?
  2. What Is the Difference Between HSA and FSA?
  3. HSA vs. FSA Eligibility
  4. Should I Get an HSA or FSA?
  5. FSA vs. HSA FAQs
  6. Final Thoughts

What Are HSAs and FSAs?

An HSA stands for Health Savings Account. It’s considered a savings account with tax benefits. You can put pre-taxed money into your HSA, lower your tax bill, and even earn interest on your HSA funds. 

An FSA stands for Flexible Spending Account. An FSA is through your employer, and they set the limits for how much you can contribute to the account. The amount of funds you put into the spending account can help reduce your taxable income. 

Both an HSA and FSA allow you to put money into the accounts to help you pay for medical expenses and offer you a tax advantage. With an FSA, your employer may contribute to the account, but it’s not a given.

What Is an HSA or FSA Card?

An HSA card is a debit card that allows you to access funds in your Health Savings Account. You must use your card on eligible expenses. Non-eligible purchases are subject to a 20% penalty, and you’ll have to claim them on your income taxes

An FSA card is a debit card that allows you to access funds in your Flexible Spending Account. The funds are meant to pay for eligible medical expenses. The FSA card has a “use-it-or-lose-it” policy. This means, if you don’t use up your FSA funds before the end of the year, you’ll lose them. However, some employers have a grace period that gives you a little extra time to get spending. 

What Is the Difference Between HSA and FSA?

There are several differences between an HSA and FSA, including ownership, eligibility, benefits, and limitations. One of the main differences is an HSA is owned by the individual (you!), while an FSA is managed by the employer. 

Overall, an HSA tends to have more flexibility and higher contribution limits. It also grants rollover if you don’t use all of your funds by the end of the year. But, to have an HSA, you must be enrolled in a high-deductible health care plan (HDHP). Some employees avoid high-deductible plans because of the potential for some high out-of-pocket expenses. 

Check out the HSA and FSA comparison chart below to get more details on how these options differ.

Health Savings Account (HSA)Flexible Spending Account (FSA) 
Ownership
  • Owned by you, the individual
  • Offered and managed by your employer
Eligibility
  • Must be enrolled in a high-deductible health plan (HDHP)
  • Cannot be enrolled in Medicare
  • Cannot be a dependent on someone else’s tax return 
  • Must be set up by your employer
  • Cannot be self-employed
  • Cannot be unemployed
Annual Contribution Limits
  • $3,600 annual limit for self-only¹ 
  • $7,200 annual limit for families¹
  • $2,750 annual limit²
Contribution Changes
  • You can change your HSA contributions at any time, but can’t exceed contribution limits
  • You can only change your FSA contributions during open enrollment, if your family situation changes or if you change employers
Limitations
  • Ineligible purchases are subject to penalties and must be declared on your taxes
  • You may need to pay out-of-pocket and request reimbursement
  • You may need to pay for ineligible purchases
Rollover
  • Unused funds roll over every year
  • After the age of 65, savings can be taken out tax-free
  • Funds expire at the end of each year, unless your employer has a small grace period

It’s also important to note if you leave your employer, you must give up your FSA. The only exception is if you’re eligible to continue it through Continuation of Health Coverage (COBRA).  

HSA vs. FSA Eligibility

HSAs and FSAs both help you pay for certain medical, dental, and vision costs. Both an HSA and an FSA cover you, your spouse, your children, and other eligible dependents.

The list of HSA- and FSA-eligible costs varies. It can include dental work, eye exams, prescription medications, surgery, glass, chiropractic care, and more. Penalties may apply for non-qualifying expenses. 

If you use your HSA on non-qualifying purchases, you’ll face penalties and have to pay taxes on them. If you use your FSA on non-qualifying purchases, you must pay the amount back or risk your FSA card being deactivated. In some cases, you may be able to use other FSA reimbursements to pay off your outstanding balance. 

HSA and FSA Coverage

Your HSA or FSA is meant to help with medical, dental, and vision expenses. Eligible costs include various products, procedures, exams, and appointments. The IRS provides a full list and details.

Should I Get an HSA or FSA?

Whether you should get an HSA or FSA depends on what’s important to you and your eligibility. Prioritize what’s important to you. Look at the differences between an FSA and HSA, and figure out which one best addresses your financial needs and goals

Eligibility can also be a determining factor. If you are self-employed or unemployed, an FSA isn’t an option for you. If you aren’t on a high-deductible plan, an HSA isn’t an option for you. If you’re thinking about switching to an HDHP, make sure you consider the out-of-pocket expenses. If you’re not confident this type of health insurance plan matches your financial situation, an FSA might be the way to go. 

Oftentimes, you can speak with your employer to discuss specific benefits. They may also be able to offer some guidance on what looks like the best choice for you. 

FSA vs. HSA FAQs

If you still have lingering questions about an FSA vs. an HSA, keep reading for some additional insight.

What does HSA or FSA eligible mean?

If something is “HSA eligible,” it means you can use funds from your Health Savings Account to pay for it. If something is “FSA eligible,” it means you can use funds from your Flexible Spending Account to pay for it.

Is an HSA the same as an FSA for tax purposes?

Both an HSA and FSA are funded from your gross income, so your contributions are tax-free. You don’t owe taxes on withdrawals from your HSA or FSA unless they are for ineligible purchases.

Can you have an HSA and an FSA?

You usually can’t contribute to both an HSA and an FSA in the same plan year. There is an exception. You can use both if your employer offers a “limited-purpose” FSA. Your best bet is to check with your employer (usually the Human Resources Department) to confirm your options.

What’s the difference between an FSA and DCFSA?

An FSA is for health care for you and covered dependents. A Dependent Care FSA (DCFSA) is for care-related expenses for covered dependents. For example, an FSA may help with your child’s dentist appointments, but a DCFSA may help with daycare expenses. 

Final Thoughts

There are benefits to both an HSA and FSA. Ultimately, the first deciding factor is eligibility. Once you figure out which one you’re eligible for, weigh the pros and cons of each. Determine what’s going to be the most helpful to you when tackling your health care costs and other financial goals. 

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¹HSA limits for 2021 and FSA limits for 2021
²New legislation due to COVID-19 has allowed employers to increase the flexibility of some FSA accounts

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