Both HSA and FSA allow you to pay for medical care, so what is the actual difference between them?
Here’s a quick breakdown:
Health Savings Account requires a high-deductible health insurance plan. They are owned by the employee, and self-employed individuals are eligible, and not tied to employment. They have higher contribution limits, and contributions can be made until tax day for the year. HSAs have investment capabilities and can roll over. HSAs can serve as Self-Employed Health Insurance Deductions, as long as you have a net profit and are not eligible for an employer-sponsored health plan. This deduction is taken as an adjustment to income and does not require itemizing deductions.
A flex spending account is owned by the employer, and self-employed individuals are not eligible; they must be through a group health plan by employer. They have lower contribution limits and are tied to employment. You can choose your contribution amount with an FSA at the start of the year. FSA does not have investment capabilities, and any unused funds are lost at the end of the year. With an FSA, do not overestimate your contributions; hence that whatever is left, you will lose, so make it reasonable.
HSAs provide much more flexibility on how you spend your money, while FSAs allow you to pay for both care and dependent care with pre-tax dollars. Both are pre-tax saving methods for eligible healthcare expenses and can be part of an employee benefits package.
Not stating one is better than the other, whichever will benefit you the most.
This is just a quick breakdown comparison; contact your agent for more information.