HSAs vs. FSAs: what’s the better option for your healthcare expenses?

With the passage of the Patient Protection and Affordable Care Act (PPACA) , Americans have more control than ever over their health care choices, especially when it comes to paying for medical services and products. Even before the law was passed , Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) were effective means of covering these expenses, but many employees who are offered either an FSA or HSA are unsure of which option to choose.

Luckily, FSAstore.com is here to help you weigh the positives and negatives of these accounts, so you can make an informed choice that will work best for your bottom line.

Flexible Spending Accounts (FSAs)

Positives

-Through the use of regular payroll deductions, FSA account holders can set aside tax-free money that they can use on FSA eligible medical services and products.

-Over-the-counter (OTC) medicines can be purchased with an FSA after obtaining a prescription from a doctor.

-Employers can offer either an extended grace period at the end of an employee’s FSA year or the option to carry over up to $500 into the next year.

-There are no reporting requirements for FSAs on federal income tax returns.

Negatives

-Employees are only allowed to contribute $2,500 into their FSAs each year. If you and your spouse have separate FSA accounts, you could contribute up to $5,000 -Employees are beholden to spending deadlines, so they will have to carefully plan out their spending throughout the year, while also leaving enough money to cover unexpected medical expenses.

-FSA account holders can itemize their deductions, but they cannot apply their FSA expenses when itemizing. This is considered “double dipping” by the IRS and is prohibited.

-Medical expenses like healthcare premiums, long-term care expenses and amounts covered under another health plan are not applicable with an FSA.

Healthcare Savings Accounts (HSAs)

Positives

-HSAs function much like personal savings accounts, but the funds are used to pay for healthcare expenses. These accounts give users far more freedom, as they are not tied to an employer or an insurance company.

-The money that is put into an HSA is not taxed and individuals can shop around for care and products based on quality and cost.

-Employers can contribute to an HSA, but employees will have direct control over spending and the funds will remain theirs even after switching jobs.

-Any unused money at the end of the year will be accessible during the next calendar year.

Negatives

-Only individuals with a qualifying High-Deductible Health Plan (HDHP) and no other first-dollar coverage are eligible for an HSA.

-Money removed from an HSA that is not used on qualifying healthcare expenses will be taxed in addition to a 20% penalty.

Ultimately, your decision between FSAs and HSAs will come down to what exactly your employer can offer you in terms of benefits, what sorts of health plans are feasible for your finances and how much you expect to spend on qualifying healthcare expenses and products over the course of a year.

Visit FSAstore.com to learn more about your potential benefits and explore our impressive selection of items that can help support your long-term health and well-being.

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