If your employer offers you a Flexible Spending Account (FSA), but you already have a Health Savings Account (HSA), can you keep both?
Not always.
Below, we explain when you can have an HSA and an FSA together.
We also compare the two types of savings accounts and discuss the rules, limits, and peculiarities of each one.
Let’s start with the meaning of FSA and HSA.
What Is the Difference Between HSA and FSA?
In most cases, you are not allowed to have an HSA and an FSA at the same time.
Why?
The two accounts offer tax deductions for very similar lists of medical expenses.
If you have both, you might be tempted to get reimbursements for the same spending twice—from the FSA and the HSA.
That’s called double-dipping, and it’s illegal.
What Is an HSA?
An HSA is a savings account you can use to cover medical expenses.
Contributions to this account are tax-deductible, and withdrawals are tax-free when used for the eligible expenses.
These include a wide range of medical expenses, including doctor visits, prescription drugs, dental care, and more.
Best of all, you can use HSAs not only to reduce healthcare costs but to save for retirement, too.
That said, they are available only to people with an HSA-eligible high deductible health plan (HDHP).
What Is an FSA?
A Flexible Spending Account (FSA) is a type of account where you can set aside money for eligible medical expenses.
Typically, companies provide it to employees and deduct the amount from their paycheck on a pretax basis. This helps lower the cost of health care.
You can use it to pay for deductibles, dental and vision care, certain prescription drugs, and so on.
Overall, FSAs are a valuable tool for managing health care costs.
That said, you have to use the funds within a specified time frame. Otherwise, the remainder will be forfeited at the end of the year.
Similarities Between HSA and FSA
Both types of accounts provide tax-free distributions for eligible medical expenses.
In both cases, there's a contribution limit you can't exceed.
The FSA rollover rules for 2022 allow you to carry over up to $570. The annual contribution limit is $2,850.
For HSAs, the maximum contribution for individuals is $3,650. For families, the amount is $7,300.
The penalty for having HSA and FSA excess contributions is different.
With an HSA, you have a 6% excise tax on the excess amount. In addition, you’ll have to pay income tax on the overcontribution and any earnings you've generated from it.
Usually, the remaining contributions in your FSA remain with your employer at the end of the year.
Alternatively, they can give you a short grace period to use the money or roll over the allowed amount.
Difference Between FSA and HSA
Apart from the contribution limits, what is the difference between FSA and HSA?
Let’s start with the eligibility criteria.
Only individuals with an HDHP can open an HSA. There is no such restriction on FSAs.
Additionally, an FSA has a “use it or lose it” policy. In contrast, HSA funds roll over from year to year. This makes them suitable for long-term investments and savings.
The next difference is the account owner.
Employers may offer an FSA as a health care benefit. This means you'll lose your account when you leave your job.
Your HSA, on the other hand, moves with you, as you are the sole owner of the account.
Finally, FSA contributions are made with pretax dollars.
Contributions to an HSA are either tax-deductible or pre-tax if made through your employer.
Can I Have HSA and FSA at the Same Time?
Generally, you can't have an FSA and HSA simultaneously.
But there are a few exceptions.
If you have a limited purpose, post-deductible, or dependent care FSA, you can combine it with an HSA.
Let's see what the meaning of each FSA account is.
What Is a Limited Purpose FSA (LPFSA)?
A limited purpose FSA (LPFSA) covers only dental and vision costs. It doesn’t include other expenses.
The rest of the rules and specifics are the same as for a traditional FSA.
But with this type of account, you don’t have to choose between HSA or FSA.
You can have both.
What Is a Post-Deductible FSA?
A post-deductible FSA is a combination between a traditional and a limited FSA.
With this type of account, you can use HSA and FSA at the same time.
But there's one condition.
It covers only dental and vision care until you reach the HSA contribution limit. After that, you can use it for other eligible medical expenses as well.
What Is a Dependent Care FSA?
A dependent care FSA, or Dependent Care Assistance Plan (DCAP), helps you take care of your dependents.
These can be children under 13 or with disabilities or elderly parents who cannot take care of themselves.
Since it has a completely different purpose, you can combine this type of FSA with an HSA.
Wrap Up
Can you have HSA and FSA simultaneously?
In most cases, the answer is no because they cover almost the same medical expenses.
Luckily, there are a few exceptions.
Our detailed guide above presents the different types of FSAs you can combine with an HSA.
While they both provide tax-advantaged funds for medical expenses, there are some key differences.
Each has its own set of benefits, and you usually can’t have them both.
Read our detailed guide on what an FSA and an HSA account is and choose wisely.
There’s a clear winner in the FSA account vs. HSA account battle.
Both offer tax-advantaged funds for medical expenses.
That said, the money you contribute to your HSA account can stay there and grow tax-free indefinitely.
This allows you to use it as a savings account, too.
That’s not the case with an FSA.
If you cannot have HSA and FSA together, choose the former.
You get a debit card with both HSA and FSA accounts. You can use it to withdraw money for medical expenses.
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With an eye for research, Aleksandra is determined to always get to the bottom of things. If there’s a glitch in the system, she’ll find it and make sure you know about it.
