Flexible vs. Health Savings Accounts

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Introduction
The purpose of this article is to cover the basics on health savings accounts (HSAs) and flexible spending arrangements (FSA).

HSA vs. FSA

1. Eligibility - To be eligible for a HSA, a taxpayer must have a high deductible health plan (HDHP). There are no requirements for enrollment into a FSA.

2. Carryover - Unused balances in a HSA rollover into the next year. Any unused amounts in a FSA revert back to the employer unless the employer allows the employee to rollover $500.

3. Contribution Limits - HSA contributions are limited to $3,400 if single ($6,750 if married) with a catch-up contribution of $1,000 for anyone over 55. The contribution limit for FSAs is $2,600.

4. Tax Benefit - Both contributions and distributions are not subject to income tax for HSAs (assuming that the remaining restrictions are met - ie. funds are spent on qualifying medical expenses). Contributions to a FSA are subject to income tax and distributions are tax free.

5. Employer Attachment - HSAs follow the employee regardless of whether they remain with a specific employer. Most of the time, FSAs are tied to the employer offering the benefit (an employee will forfeit the amount if they leave).

References
https://www.irs.gov/pub/irs-pdf/p969.pdf
https://www.irs.gov/pub/irs-drop/rp-16-55.pdf
https://www.irs.gov/pub/irs-drop/rp-16-28.pdf

Disclosure
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.