HSA vs. FSA: Which Offers the Best Tax Advantages?

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The information in this article is up to date for tax year 2024 (returns filed in 2025).

FSAs and HSAs are tax-advantaged accounts that offer savings on health costs. Each works a little differently, with pros and cons, and has varying eligibility requirements. 

Below, we’ll break down the difference between FSAs vs. HSAs and their respective tax advantages so you can make the right choice for you and your family.

What is an FSA?

A Flexible Spending Account (FSA), also called a flexible spending arrangement, is an employer-sponsored benefit that allows employees to contribute part of their paycheck to an account pre-tax to use for qualified medical expenses. 

The contribution limit for individuals in 2024 is $3,200. If your spouse has an FSA, they can contribute $3,200 as well, for a combined household contribution of $6,400. 

Contributions to FSAs are not subject to federal income tax, Social Security tax, or Medicare tax.

Pros of FSAs

• Tax-advantaged way to save money for medical costs
• Employers may choose to contribute
• Contributions don’t need to be reported on your tax return

Cons of FSAs

• FSAs are typically use-it or lose-it, meaning funds do not carry over at the end of year*
• You can’t contribute as much to an FSA as an HSA
• FSAs are not portable, meaning you can’t take it with you when you change jobs

*For FSAs that permit the carryover of unused amounts, the maximum 2024 carryover amount to 2025 is $640. So if you have an FSA, plan to use those funds by the end of the year. 

What is an HSA?

Health savings accounts (HSAs) are tax-advantaged savings accounts that allow you to contribute money pre-tax to use toward qualified medical expenses. By using untaxed dollars in to pay for medical expenses like deductibles, you can lower your out-of-pocket health care costs. 

HSAs have triple tax benefits: 

• Tax-free contributions
• Tax-free capital gains
• Tax-free withdrawals on qualified medical costs

How much you can contribute depends on your age and whether your plan covers just you or also your family. 

For 2024, the contribution limits are: 

• $4,150 for self-only coverage
• $8,300 for family coverage

Those age 55 and older can also make an additional $1,000 catch-up contribution. This means a senior couple over age 55 could max out their contributions at $10,300. 

If your employer offers contributions, your contributions together cannot exceed the max limits. 

Pros of HSAs

• Tax-advantaged way to save money for medical costs
• You can invest your HSA funds into potentially high-return assets
• Your money rolls over to the next year
• HSAs are portable, meaning you can bring your account with you when you change jobs
• Your employer can contribute to your HSA

Cons of HSAs

• You must have a high-deductible health plan (HDHP) to qualify for an HSA
• Some plans may have restrictions on if/where you can invest your funds
• If you use the funds for non-qualified expenses, you will owe income tax plus a 20% penalty

What can you pay for with an HSA and FSA?

An expense that qualifies for the medical and dental expenses tax deduction generally also falls under qualified medical expenses for an HSA and FSA. 

Typical expenses covered under both HSAs and FSAs include:

• Prescriptions
• Copays
• Deductible payments
• Dental care
• Eyecare
• Acupuncture
• Chiropractic
• Infertility treatments
• Medical supplies like eyeglasses, COVID test kits, PPE, feminine hygiene products, etc.

HSA vs. FSA: What’s the difference?

Here’s a quick breakdown of the differences between an HSA and an FSA.

	HSA	FSA
Employer can contribute to account	Yes. Employers commonly offer contributions.	Yes, but less common.
Account moves with your job	Yes. Your HSA can follow you as your employment changes.	No. Unless you are eligible for FSA continuation thru COBRA
Pre-tax contributions allowed	Yes	Yes
Can invest in stocks for growth	Yes	No
Need high-deductible health plan to qualify	Yes	No
Can rollover year-to-year	Yes	No, unless your employer offers a rollover or grace period
Required to report on tax return	Yes	No
Impact on taxes	Contributions are tax-deductible or can be deducted pretax from your paycheck. Distributions are tax-free when used for qualifying medical expenses.	Contributions are pretax. Distributions are tax-free when used for qualifying medical expenses.

HSA vs. FSA: Which has the best tax advantages?

Both FSAs and HSAs have powerful tax benefits. Which one you choose will depend on your situation and what plans you qualify for. 

HSAs generally have bigger tax advantages (including higher contribution limits). However, you can only use an HSA if you have a qualifying health plan. 

If you don’t have a qualifying HDHP, an employer-sponsored FSA is a great option. Just make sure you track your expenses carefully and use up the funds in the account before the end of the year. 

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The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.