Hey Employees, it’s almost Open Enrollment time! It’s that time of year when you stare blankly at your open enrollment web page or packet full of glossy brochures. Suddenly, “benefits” seem overwhelming. You have Googled “deductible” and determined that since you don’t own a crystal ball or have a fast-pass at your local fortune teller, your chances of choosing the perfect mix of benefits are slim to none.
Beyond choosing the right health plan, it’s a smart choice to also consider tax-advantaged spending and saving accounts if your employer offers them. You don’t need a secret decoder ring to understand how a health care flexible spending account (FSA) or a health savings account (HSA) can put some money IN your pocket while helping you cover out-of-pocket medical costs, both planned and unplanned.
Here are a few simple steps to help you understand the benefit of HSAs and FSAs:
Apples to Apples: What’s the Same between an HSA and FSA?
Both accounts cover eligible medical expenses and are funded by contributions taken from your paycheck.
Both an HSA and FSA are funded with PRE-TAX money. That’s where the word BENEFIT really comes into play. You can reduce your overall federal taxable income, and you are getting more bang for each buck that you spend.
Primary access to funds is usually through use of a payment card or claims submission.
Some employers offer “seed” money for both an FSA and an HSA. Double-check your company’s matching or offering benefit. This would be tax-free money you can spend as needed.
Apples to Oranges: What’s Different Between an HSA and FSA?
Does it expire at the end of the year?
- FSAs have an “expiration date” of some kind. Depending on your employer, you may have to spend all the funds within the calendar year, within 14.5 months (grace period), or be able to roll-over up to $500. In any case, they are chiefly a “use it or lose it” plan.
- HSAs, on the other hand, don’t expire. An HSA is your bank account to use for qualified medical expenses for as long as you want.
What if I leave my employer?
- FSAs are a benefit of a particular employer. Depending on the employer, you may be able to spend it down for the year, if you have remaining funds.
- HSAs are a personal bank account and completely portable. The money in the account is always yours to use. You can roll it over to your new HSA provider if you are eligible in the future, or you may maintain it, let it gain interest, and use it as you need it.
Are there special rules about one or the other? Am I eligible?
- There are several types of FSAs you can enroll in. The only thing that will opt you OUT of a health care FSA is active contribution to an HSA. However, you would still be eligible to contribute to a dependent care FSA or a limited purpose FSA. More on that in a moment…
- If you are covered by an HDHP health plan, you are eligible to open and contribute to an HSA.
- If you are receiving Medicare, you would not be eligible to open and contribute to an HSA; however, if you have one already, you can use your funds as needed for eligible expenses.
- If you are a dependent on someone else’s tax return, you cannot have your own HSA.
What about receipts?
- For all FSAs, the IRS requires documentation to verify the expense. Every time you use your FSA, you’ll want to save the receipt, explanation of benefits (EOB), or doctor visit bill. Depending on your FSA provider, the system can recognize recurring claims, such as your co-pay or recurring prescription expenses, and the receipt would not be necessary.
- HSAs can be used on medical expenses without having to submit documentation; however, keep those receipts and EOBs to reconcile your expenses and justify expenditures if the IRS requests verification of your HSA expenditures. It’s always a good practice to save and file your documentation.
Remember! Always compare information here with your employer’s plan information, and talk with your HR representative about your company’s specific plan details. To see more sample eligible expenses for HSAs and FSAs, check out this comprehensive list. You can also visit our account comparison page to see more information on HSA and FSA similarities and differences.
Author: Shelley Jones is the client marketing manager at ConnectYourCare. Before becoming an open enrollment guru, she was ConnectYourCare’s proposal project manager, a university event planner and operations manager, and creative arts director. She derives great pleasure at helping clients and participants understand their tremendous cosmic power behind their tax-advantaged spending accounts.