What’s the Difference Between HSA and FSA?

Health Care Spending and Flexible Spending Accounts

Health Savings Accounts and Flexible Spending Accounts help you lower your income taxes while saving money to use for medical expenses. But the two accounts are otherwise quite different. This article will explain what you should know about the differences between an HSA and an FSA, and the advantages and disadvantages of each.

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Differences Between an HSA and FSA

There are many differences between an HSA and an FSA, and without looking at these closely you might feel confused. Let's look at some of the most important differences.

HSAs & FSAs Differ on Who Owns the Account

When you start a Flexible Spending Account (FSA), you don’t actually own the account; your employer does. You can’t take it with you. In some cases, you even forfeit the money in it—money you contributed from your paychecks—to your employer. This can occur whether you leave your job voluntarily or are let go.

When you open a Health Savings Account (HSA), you own the account and all of the money in it. You take it with you when you move, change jobs, and even if you lose your health insurance.

Spending vs Saving

Flexible Spending Accounts are structured to encourage you to spend most or all of the money in it. Health Savings Accounts, on the other hand, are structured to encourage you to save.

You can’t invest the money set aside in an FSA, and it's not an interest-bearing account. Even worse, you forfeit unspent funds to your employer at the end of the year; it’s use it or lose it.

Employers are allowed to roll over up to $500 of your unspent funds into your FSA for next year, but they’re not obligated to do so. Anything more than $500 left unspent in your account at the end of the year disappears into your employer’s coffers. Alternatively, instead of letting you roll over $500, your employer can give you an extra two and a half months after the end of the year to use up the money in your FSA; any money remaining at the end of that time would be forfeited. (Note that although these rules are normally strictly enforced, Congress and the IRS have provided flexibility in 2021 and 2022, due to the COVID pandemic.)

On the other hand, you can go as many years as you like without spending a dime of the money in your HSA, and, unlike an FSA, the money will still be there. Your employer can’t touch it, and there’s no end-of-the-year deadline to use it or lose it.

Instead of just sitting in your account doing nothing, you may invest the money in your HSA, or you can let it grow slowly in a federally insured interest-bearing account. Interest and earnings grow tax-deferred. You don’t pay taxes on earnings or contributions when you withdraw them if you use them for qualified medical expenses (here's the IRS list of qualified medical expenses).

Eligibility Requirements Differ Between an FSA & HSA

To participate in an FSA, you must have a job with an employer who offers an FSA. The employer decides the eligibility rules, and the account is linked to your job.

To participate in an HSA, you must have an HSA-qualified High Deductible Health Plan or HDHP. Not all employers offer HDHPs, but they can be purchased in the individual/family market, through the exchange or off-exchange.

If you’re on Medicare, you’re not eligible to contribute to an HSA, even if you also have coverage under a separate HDHP. If you have a more traditional health insurance policy, either in addition to your HDHP or instead of an HDHP, you’re not eligible. If someone else can claim you as a dependent on their tax return, you’re not eligible, even if they don’t actually claim you.

If you have an FSA, you’re not eligible to start an HSA unless your FSA is a limited-purpose or post-deductible FSA.

  • Limited-purpose FSAs can only be used to pay for things like dental and vision care.
  • Post-deductible FSAs can't reimburse any expenses until the member has paid at least as much as the required minimum deductible for an HSA-qualified plan. (In 2022, the minimum deductible for an HSA-qualified health plan is $1,400 for an individual and $2,800 for a family. For 2023, these limits increase to $1,500 and $3,000, respectively.)

If you have an FSA and you’d like to start an HSA, you have two options: check with your employer to see if your FSA is a limited-purpose FSA or a post-deductible FSA, or wait until the next year and get rid of the FSA. But keep in mind that you also have to have coverage under an HSA-compatible HDHP in order to make contributions to an HSA. So you might also need to change your health plan in order to be eligible to start contributing to an HSA.

The HSA is designed to help you cope with the high deductibles associated with HDHP health insurance plans. The start of your HSA might be associated with your job and your employer might be contributing to your HSA, but your HSA isn't tied to your job. In fact, you don’t even have to have a job to open and contribute to an HSA—you just have to have HDHP coverage in place.

What Happens to Your Account When You Lose Your Job Differs

If you lose your job, you generally lose your FSA and the money in it. You can’t even use your FSA money to pay your COBRA health insurance premiums

In contrast, when you lose your job, you keep your HSA and all of the funds in it. If you lose your HDHP health insurance along with your job, you won’t be allowed to contribute any more funds to your HSA until you get another HDHP health plan (either from another employer or purchased in the individual market).

However, you may still withdraw funds to spend on eligible medical expenses, even if you no longer have an HDHP. In fact, you may even use your HSA funds to pay your COBRA health insurance premiums or to pay health insurance premiums if you’re receiving government unemployment benefits.

Who Can Contribute to an FSA vs HSA

With an FSA, only you or your employer may contribute, and many employers choose not to. FSA contributions are generally made by pre-tax payroll deductions, and you must commit to having a specific amount taken from each paycheck for the entire year.

Once you’ve made the financial commitment, you’re not allowed to change it until the next open enrollment period. (Note that this rule did not apply in 2021, due to the COVID pandemic; FSA elections were allowed to be started, ended, or modified mid-year, without a qualifying life event.)

With an HSA, you’re not locked into an entire year of contributions. You can change your contribution amount if you choose to. Anyone can contribute to your HSA: your employer, you, your parents, your ex-spouse, anyone. However, the contributions from all sources combined can’t be more than the yearly maximum limit set by the IRS.

You Can Contribute More to an HSA Than an FSA

The IRS rules limit how much tax-free money you can squirrel away in both HSAs and FSAs. For an FSA, the maximum allowable contribution was $2,850 in 2022, increasing to $3,050 in 2023. However, your employer can place stricter limitations on your FSA contributions if it chooses.

How much you can contribute to an HSA is set by the IRS—your employer cannot place additional restrictions on it. The maximum contribution limit changes each year and depends on whether you have family HDHP coverage or single-only HDHP coverage (note that "family coverage" just means that the HDHP must cover at least one additional family member; it's not a requirement that all family members have coverage under the plan).

2023 2022
Self-only coverage under age 55 $3,850 $3,650
Family coverage under age 55 $7,750 $7,300
Self-only coverage age 55+ $4,850 $4,650
Family coverage age 55+ $8,750 $8,300
Yearly HSA Contribution Limits

Who Is Responsible for HSA vs FSA Withdrawals

Since your employer technically owns your FSA account, the administrative burdens for this type of account fall on your employer. For example, it’s your employer’s responsibility to make sure funds withdrawn from your FSA are only spent on eligible medical expenses.

With an HSA, the buck stops with you. You’re responsible for accounting for HSA deposits and withdrawals. You must keep sufficient records to show the IRS that you spent any withdrawals on eligible medical expenses, or you’ll have to pay income taxes plus a 20% penalty on any withdrawn funds. Any year you make a deposit or take a withdrawal from your HSA, you’ll need to file Form 8889 with your federal income taxes (tax software makes this a fairly simple process).

Only One Can Be Used as an Emergency Fund

Since you own your HSA, you’re the one who decides when to take the money out and what to use it for. If you choose to take it out for something that’s not an eligible medical expense, you’ll pay a stiff 20% penalty on it (unless you are disabled or 65 and over). Additionally, non-medical withdrawals will be added to your income that year, so you’ll pay higher income taxes, too.

While it might not be recommended, and it might not be a savvy use of the funds in your HSA, it can be comforting to know that you have some money you can access in an emergency if you must. However, you must also be willing to pay the penalties.

It's also possible to treat your HSA as an emergency fund without incurring any taxes or penalties. Here's how it works. You contribute to your HSA but then use non-HSA funds (ie, money from your regular bank account rather than your HSA) to pay medical bills. You keep your receipts and keep track of how much you've paid in medical expenses—and you don't deduct any of those payments on your tax return. All the while, the money in your HSA continues to grow, including new contributions and interest or investment income.

Then one day, several years down the road, perhaps your basement floods and you're in need of cash in a hurry. You can choose to reimburse yourself at that point for all of the medical expenses that you've paid since you opened your HSA since there's no time limit on reimbursements. There's no tax or penalty in this case since you're just reimbursing yourself for medical expenses. But you can turn around and use the money to fix your basement since you used your own non-HSA funds over the previous years to pay your medical bills.

With an FSA, you won’t be allowed to withdraw the money for anything other than a current eligible medical expense. You can’t use your FSA money for non-medical emergency expenses, no matter how desperate you are. 

Only One Can Be Used to Help Plan for Retirement

While FSAs can't function as retirement accounts, HSAs are increasingly being used as an additional way to save for retirement.

Once you turn 65, you can withdraw money in your HSA for non-medical expenses and you won't pay a penalty—although you will pay income tax, just as you would with a traditional IRA.

Alternatively, you can just leave the money in your HSA and let it continue to grow throughout your retirement until if and when you have significant medical costs or need expensive long-term care. Then you can use the HSA money, still tax-free, to pay for those expenses.

Since an FSA can either be used for eligible medical expenses or forfeited at year-end, it can't help you plan for retirement.

Only One Allows You to Withdraw Money You Haven’t Deposited Yet 

With an HSA, you can only withdraw money that’s actually in the account. However, with an FSA, you’re allowed to start using your account even before you've made your first contribution of the year.

For example, let’s say you’ve committed to having $1,200 per year ($100 per month), payroll deducted and deposited into your FSA. If you get sick and have to pay your entire $1,500 health insurance deductible in February, you’ll only have $100-$200 in your FSA. No problem, you can withdraw your entire yearly contribution of $1,200, even though you haven’t actually contributed it yet.

You’ll have a negative FSA balance, but your contributions will continue with each paycheck. At the end of the year, your FSA balance will be zero. What if you leave your job before the end of the year? You don’t have to pay back the difference!

This is a significant advantage of FSAs, but keep in mind that the caveat is that if you leave your job mid-year and still have money remaining in your FSA, you'll forfeit it all to your employer.

HSA vs FSA at Different Stages of Life

While there are many accounting type differences between an HSA and an FSA, the choice of a plan may also come down to expected medical expenses. If you have young children and are relatively healthy, an FSA might be a good option for the type of copays and other expenses you will encounter. If you develop a major medical condition, however, an HSA that has been growing for several years may be more useful in covering these greater out-of-pocket expenses.

Summary of the Differences Between an HSA and FSA

While both HSAs and FSAs are touted as ways to reduce the amount of taxes you pay, there are many differences. As a quick summary, these plans differ in:

  • Who owns the account
  • Eligibility
  • What happens if you lose your job
  • Who can contribute
  • How much you can contribute
  • Who is responsible for withdrawals, and who is responsible for proving documentation that it is used for an eligible medical expense
  • If it can be used for an emergency
  • If it can be used to help plan retirement
  • If you can withdraw money, you haven't deposited yet
  • Spending vs saving
  • Whether funds rollover or expire at the end of the year

Having an HSA or FSA is one way to reduce the taxable income you spend on medical expenses. While helpful, the amount that you can contribute may well be below your out-of-pocket expenses if you have a major medical condition.

You may still be able to use tax-free dollars for these expenses if the amount not covered by your FSA or HSA exceeds 7.5% of your adjusted gross income, and if you itemize your tax deductions.

A Word From Verywell

If your employer offers a medical FSA and you anticipate any medical expenses in the coming year, the FSA can be a great way to ensure that you're using pre-tax funds to cover at least some of your medical expenses. But you do need to be aware of the "use it or lose it" rules for those funds, and understand how FSAs work if you leave your job mid-year.

HSAs, on the other hand, have a lot more flexibility. You can set one up yourself, as long as you have coverage under an HSA-qualified high-deductible health plan; there's no requirement that an HSA be tied to your job. And if it is linked to your job, you get to take it with you if you leave the job. Any money you put in an HSA will roll over from one year to the next if you don't need to use it for medical expenses, so the account can grow over time.

7 Sources
Verywell Health uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Internal Revenue Service. New law provides additional flexibility for health FSAs and dependent care assistance programs.

  2. Internal Revenue Service. Revenue Procedure 2021-25.

  3. Internal Revenue Service. Revenue Procedure 2022-24.

  4. Internal Revenue Service. Publication 969 (2020), Health Savings Accounts and Other Tax-Favored Health Plans.

  5. Society for Human Resources Management. Appropriations Act Permits Midyear FSA Elections, Unlimited Carryover Amounts Through 2021. January 5, 2021.

  6. Internal Revenue Service. Revenue Procedure 2021-45.

  7. Internal Revenue Service. Revenue Procedure 2022-38.

Additional Reading

By Elizabeth Davis, RN
Elizabeth Davis, RN, is a health insurance expert and patient liaison. She's held board certifications in emergency nursing and infusion nursing.