As an employee or an employer, it can be difficult to decide if a Flexible Spending Account or a Health Savings Account is the most beneficial. Deciding which one to offer your employees or which one to use for yourself can be confusing. You also must learn the stipulations and benefits of each to decide which would be best for you or your employees. We are breaking down the differences in an HSA and a FSA for you to make the best decisions for you and your business.
As you can see, both HSA’s and FSA’s have the ability for you to spend tax-free money on qualified medical expenses and your contributions may be made pre-tax. However, that is where the similarities end. HSA’s can be used to invest as well as can be used for medical expenses after retirement. You do not lose these funds if you lose your job, change your job, or at the end of the year. These funds are always yours.
In comparison, FSA’s are owned by your employer. Funds may be lost if you lose your job, change your job, or at the end of the year. However, depending on the employer, some may allow $500 to roll over into the next year. Where HSA’s can be used for investments, FSA’s are there for the specific purpose of out of pocket medical costs. Since a FSA isn’t taxable, this results in a reduction in the payroll taxes paid both by the employing business and the employees.
Keep in mind, an employer may contribute to an employees HSA or FSA. This can also have on payroll taxes as an employer. One stipulation is that total combined contributions from the employee and employer cannot exceed the contributions limit for the year for either type of account.
In all, both are helpful in saving on medical expenses but an HSA, if you have a eligible healthcare plan, is more beneficial.
If you have more questions about FSA’s or HSA’s give us a call. We would be happy to help decide which is right for you or your employees.