FSAs and HSAs

Health savings accounts (HSAs) and flexible spending accounts (FSAs) allow you to set aside pre-tax dollars for eligible out-of-pocket healthcare expenses. While you can use these two accounts for the same types of expenses, the rules surrounding them are very different. Learn more about the intricacies of FSA and HSA accounts to help you decide which one you would prefer to contribute to in the future.

FSA: Use It or Lose It

A Flexible Spending Account (FSA) is a designated account into which you put pre-tax dollars that you can then use to pay for certain out-of-pocket healthcare costs. FSA contributions are limited to $2850 per year per employer. When it comes to FSAs, the most important rule you’ll want to remember is “use it or lose it.” FSA funds expire at the end of the plan year (usually December 31). However, depending on exceptions set by your employer, your FSA funds could be given a grace period of two months and 15 days into the following year or rollover up to $570 of the funds left.

You can use funds in your FSA to pay for certain medical and dental expenses for you and your dependents. You can spend FSA dollars on deductibles, copayments, and prescriptions, but not for insurance premiums. FSA funds may also be used to cover the cost of approved medical equipment.
You can use your FSA by submitting a claim (through your employer) with proof of the medical expense, then you will receive reimbursement from your account. Because the funds are “use it or lose it”, it is important to carefully plan and not put more money into your FSA than you think you will use in the plan year.

HSA: No Tax Penalties

A Health Savings Account (HSA) is a tax-exempt account used to pay or reimburse you and your family’s medical expenses if you are covered by a high-deductible health insurance plan (HDHP). HSAs allow you to make pre-tax contributions and take tax-free withdrawals to pay for covered care. By using untaxed dollars in a HSA to pay for deductibles, copayments, coinsurance, and other expenses, you may be able to lower your overall healthcare costs. The money in an HSA can be invested and grow over time and can also be withdrawn after the age of 65 and will be taxed at your ordinary tax rate with no penalties.

For 2022, you can contribute up to $3650 for self-only coverage and up to $7300 for family coverage into a HSA (only if you have a HDHP). Savings in a HSA are allowed to grow without expiring at the end of the year, unlike money in a FSA, and consumers typically have the option to keep them in cash or a range of investments. You can take a HSA with you when you switch jobs, and your employer may encourage HSA use by depositing some cash into your account at its inception or at the start of each year.

What Expenses are HSA- or FSA-Eligible?

The list is pretty extensive but some common eligible expenses include dental care, vision care, prescriptions & over-the-counter drugs, co-pays, health-related products, and some medical office visits. One big change in 2021, thanks to the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, you now can use your HSA or FSA card to buy over-the-counter medicine with or without a prescription and period care products. But, while items like thermometers and oximeters are covered, face masks and hand sanitizers are not.

HSA vs. FSA Qualification

For employers, one of the most important things to consider is that your employees are only eligible to participate in a HSA if they’re covered under a qualifying high deductible health plan (HDHP), so you’ll have to sponsor one of these plans. Employees also can’t have any other secondary health coverage. It’s important to note that employees with an HSA also can’t be claimed as a dependent on someone else’s tax return.

FSAs are offered in conjunction with your other employer-provided benefits, meaning, employees can’t get one on their own. Most employees are eligible to take part in a FSA. Unlike with HSAs, it doesn’t matter what type of health insurance plan they have – and in some cases, they don’t even need to have insurance to participate. 

HSA vs. FSA Contribution Limits

The amount an employee or other person can contribute to a HSA depends on the type of HDHP coverage, the employee’s age, and the date they became eligible, with limits set by the IRS. For 2022, employees with coverage for themselves can only contribute up to $3,650. Those with family HDHP coverage can contribute up to $7,300 yearly. The contribution limit for employees is increased by $1,000 at the end of the tax year for those who are 55 or older. Both employee and employer contributions count towards these annual maximum amounts.

In the case of FSAs, the maximum amount an employee can contribute is set by the employer and subject to IRS regulations. For 2022, salary reduction contributions to a health FSA can’t be more than $2,850 a year. Unlike HSAs, employer contributions generally don’t count towards this limit.

During the COVID-19 pandemic, many non-elective medical procedures were postponed which resulted in unused FSA funds. In response, Congress passed the Consolidated Appropriations Act of 2021.
To avoid employees forfeiting their 2020 and 2021 unused funds, the Act permits employers to:

While not required, this gives employers the option to significantly increase the flexibility of their participant’s FSAs. This Act does not go beyond 2022, however, it is a great motivator to take advantage of these offers to enroll in a FSA this year.

Top FSA and HSA Providers



A business has the right to set up their own FSA program, however, it is highly advised against because of employee privacy and HIPAA laws, which can cause conflicts of interest within the company. In addition, FSA legislation is intricate and changes regularly. The recommended course of action is to work with a third-party professional services company offering employee benefits management to set up a plan.

Closing Thoughts

As healthcare expenses continue to increase, tax-advantaged health plans can be a cost-effective way to provide competitive benefits in which both parties benefit from. Navigating FSAs and HSAs can be a confusing process so be sure to check with our reputable team of benefits experts at Finvisor to help you find and set up the plan that works best for your business. 

By incorporating these options into your benefits package, you’ll be in a better position to attract and retain great talent!

To learn more about what we do, or to request a quote, contact us at hello@finvisor.com or 415-416-6682. We’re here to help you navigate deferred revenue journal entries so you can make the most of your assets!

*This blog does not constitute solicitation or provision of legal advice and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction.*



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