Health Care FSA or HSA: Which Offers the Best Tax Advantages? Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Magaly Olivero Published Mar 17, 2016 2 min read Flexible Saving Accounts (FSA) and Health Savings Accounts (HSA) can be used to pay for qualifying out-of-pocket expenses with tax-free dollars. But the IRS rules governing these accounts differ significantly. For example, FSA funds must be spent each year or you lose the money, while funds in a HSA rollover from year to year. Consider these factors when weighing your options. Flexible Savings Accounts If you have work-based coverage, you can use a FSA to pay for deductibles, copayments, some medications, certain medical equipment and other health care costs. You don’t pay taxes on FSA contributions, which are limited to $2,550. Employers can (but are not required) to contribute to your FSA. Under IRS rules, FSA funds must be spent by a certain date or you forfeit the money. Employers, however, have the option to allow a $500 rollover to the next year. So before choosing a FSA, carefully review your medical needs and potential or planned costs for a given year. Health Savings Accounts To open a HSA, you must be under age 65 and have a plan with a high deductible of at least $1,300 for an individual and $2,600 for a family. HSA contributions and accrued interest are tax-free. The maximum contribution is $3,350 for individuals and $6,750 for families. If you are 55 or older, you can contribute an extra $1,000. The account belongs to you, whether you open a HSA on your own or through work. Unlike a FSA, unspent funds can remain in a HSA from one year to another. Once you reach retirement age, a HSA converts to a typical individual retirement account. HSA funds can pay for deductibles, copayments and other health care costs. But if the money goes toward non-medical expenses, you must pay an income tax and a 20% penalty. Make sure to take these factors into consideration when weighing out your options. Previous Post Uninsured This Tax Season? See How You Can Save Money… Next Post Life Changes – Your Health Insurance Adventure Tool [Interactive] Written by Magaly Olivero Magaly Olivero is an award-winning writer and has written for many national and regional media outlets, as well as corporate and nonprofit clients in the healthcare, tax and education industries. Her publishing credits include U.S. News and World Report, Newsweek, The New York Times, Working Woman, Better Homes and Gardens and the Connecticut Health Investigative Team. Magaly is a recipient of a National Journalism Fellowship from the University of California Annenberg School of Communication and a Health Coverage Fellowship from the Blue Cross Blue Shield of Massachusetts Foundation. More from Magaly Olivero Leave a Reply Cancel reply Browse Related Articles Tax Planning What is an HSA? Tax Deductions and Credits FSA 101 – FSA Basics Tax Tips How to Get a Tax Break for Summer Child Care Health Care When Can You Claim a Tax Deduction for Health Insurance… Tax Deductions and Credits Is PPE like Face Masks and Hand Sanitizer Tax Deductibl… Taxes 101 Common and Complex Taxcroynms Decoded Deductions and Credits Your New Little Tax Deduction! Tax Tips What is the Affordable Care Act? Health Care Tips to Help You Estimate Flexible Spending Arrangement… Tax Planning Six Ways to Reduce Your Taxable Income