Learning Center
We keep you up-to-date on the latest tax changes and news in the industry.
What’s Best, FSA or HSA?
Article Highlights:
Employer Medical Fringe Benefits.
Flexible Spending Account (FSA).
FSA Annual Contribution Limits.
FSA Limited Annual Carryover Provisions.
Health Savings Account (HSA).
HSA Qualifications.
High Deductible Insurance.
HSA as a Retirement Vehicle.
Comparison Table.
Many employers offer health flexible spending accounts (FSAs) and health savings accounts (HSAs) as part of their employee benefits packages. Both plans allow you to set aside money to pay medical expenses with pre-tax dollars, providing a significant tax benefit. But which is the better option?
Although FSAs are only available through an employer, you may be able to open an HSA on your own if you have an HSA-eligible health plan through work, your spouse's employer, private insurance, or the insurance marketplace.
How Health Flexible Spending Accounts Work - A Health Flexible Spending Account (FSA, also called a “flexible spending arrangement”) is a special account you put money into that you use to pay for certain out-of-pocket health care costs.
You don’t pay taxes on this money. This means you’ll save an amount equal to the taxes you would have paid on the money you set aside. Employers may make contributions to your FSA, but they aren’t required to. With an FSA, you submit a claim to the FSA (through your employer) with proof of the medical expense and a statement that it hasn't been covered by your plan. Then, you’ll get reimbursed for your costs.
To learn more about FSAs, contact your employer for details about your company’s FSA, including how to sign up. Facts about Health Flexible Spending Accounts (FSA):
The amount you can put into an FSA for 2023 is limited to $3,050 per employer. If you’re married, your spouse can put up to $3,050 in an FSA with their employer too. The amount is indexed for inflation each year.
You can use funds in your FSA to pay for certain medical and dental expenses for you, your spouse if you’re married, and your dependents.
o You can spend FSA funds to pay deductibles and copayments, but not for insurance premiums.
o You can spend FSA funds on prescription medications, as well as over-the-counter medicines with a doctor's prescription. Reimbursements for insulin are allowed without a prescription.
o FSAs may also be used to cover costs of medical equipment like crutches, supplies such as bandages, and diagnostic devices like blood sugar test kits.
o You generally must use the money in an FSA within the plan year. But your employer may offer one of 2 options:
§ It can provide a "grace period" of up to 2-½ extra months to use the money in your FSA.
§ It can allow you to carry over up to $610 per year (the 2023 inflation adjusted amount) to use in the following year.
Your employer doesn’t have to offer these options. If it does, it can be either one of these options, but not
Don’t put more money in an FSA than you think you'll spend within a year on things like copayments, coinsurance, drugs, and other allowed health care costs.
Health Savings Account (HSA) - Is a type of savings account that lets you set aside money on a pre-tax basis to pay for qualified medical expenses. By using untaxed dollars in a Health Savings Account (HSA) to pay for deductibles, copayments, coinsurance, and some other expenses, you may be able to lower your overall health care costs. HSA funds generally may not be used to pay premiums.
While you can use the funds in an HSA at any time to pay for qualified medical expenses, you may contribute to an HSA only if you have a High Deductible Health Plan (HDHP) — generally a health plan (including a Marketplace plan) that only covers preventive services before the deductible. For plan year 2022, the minimum deductible for an HDHP is $1,500 for an individual and $3,000 for a family. When you view plans in the Marketplace, you can see if they’re "HSA-eligible."
For 2023, if you have an HDHP, you can contribute up to $3,850 for self-only coverage and up to $7,750 for family coverage into an HSA. HSA funds roll over year to year if you don't spend them. An HSA may earn interest or other earnings, which are not taxable if used for qualified medical expenses. Some health insurance companies offer HSAs for their HDHPs. Check with your company. You can also open an HSA through some banks and other financial institutions.
Establishing and contributing to an HSA can be more than just a way for individuals to save taxes and gain control over their medical care expenditures. It can also be a retirement vehicle, especially for taxpayers who are maxed out on their other retirement plan options or who can’t contribute to an IRA because of the income limitations. There is no requirement that medical expenses must be paid or reimbursed from the HSA, so a taxpayer can maximize tax-free growth in the account by using funds from other sources to pay routine medical costs. Later, distributions can be used tax-free to pay post-retirement medical expenses. Or, if used for non-medical purposes, an individual aged 65 or older will pay income tax, but not a penalty, on the distribution. Unlike IRAs, no minimum distributions are required to be made from HSAs at any specific age.
FSA and HSA COMPARISONS | ||
DIFFERENCES | FSA | HSA |
Funds not used for medical purposes carry over year to year | Limited | Yes |
Contributions are pre-tax | Yes | Yes |
Contributions may be tax deductible | -- | Yes |
You must have high deductible medical insurance to qualify | No | Yes |
The plan is only available through an employer | Yes | No |
Funds can be invested for tax-free growth | No | Yes |
Can be used as a retirement vehicle | No | Yes |
Plan belongs to employer | Yes | No |
As you can see an HSA allows larger contributions and retirement options but requires high deductible medical insurance to qualify. While an FSA is only available if your employer offers an FSA as an employee benefit, but only has limited carryover of unused funds.
If you have further questions related to HSAs and FSAs, please give this office a call.
Want our best tax and accounting tips and insights delivered to your inbox?
Sign up for our newsletter.
Benefits of having a business advisor
Your CFO, Reimagined as a Financial Doctor
Diagnosing root causes, prescribing solutions, and guiding your property business toward long-term wealth.
Our CFO | Advisor
Raquel is a passionate business owner. Now, she is returning to her grassroots with a twist - guiding clients with her expertise as a CPA, she can advise your company as your trusted CFO and Advisor.
-
Raquel Deodanes, MS, CPA
Co-Founder✅ CPA with Real-World Experience – I help property managers stay profitable, tax-efficient, and cash flow positive.
✅ Tax Strategist – Former advisor at California’s revenue agency.
✅ Trusted by 4,000+ Businesses – Experience across CA, FL, TX, NV, and beyond.
✅ Real Estate Investor – I understand the financial realities of property management.
✅ Entrepreneur – I’ve built businesses and know the challenges you face.
Frequently Asked Questions
-
We diagnose financial inefficiencies, treat problems like poor cash flow or rising costs, and guide you to long-term financial health. That includes cleaning up your books, forecasting cash flow, optimizing operations, and helping you grow your portfolio with confidence — just like a doctor builds a custom care plan for a patient.
-
Bookkeepers record transactions. CPAs file your taxes. We connect the dots — helping you understand your numbers, strategically improve them, and make smarter decisions throughout the year. We work alongside your existing team to drive performance, not just compliance.
-
If you're unsure where your cash is going, struggling with rising costs, planning to scale, or just tired of reacting instead of planning — now is the right time. We help you get ahead of problems, not just clean up after them.
-
Clients typically see improved cash flow, cleaner books, higher NOI, better financial reporting, and a lot less stress at tax time. More importantly, you gain clarity, confidence, and control over your business — and a partner who helps you grow it.
Pricing
Painless, transparent pricing.
Let us take away your stress and give you back your time. Choose your perfect package today.
Base
-
Dedicated finance expert
-
Bookkeeping with accrual basis
-
Includes P&L, balance sheet, and cash flow statements
Core
-
Includes everything in Base, PLUS
-
Industry KPIs and financial ratios
-
Monthly virtual 1-hr meetings
-
Monthly rolling budget forecasts
Growth
-
Includes everything in Base, CORE
-
Budget vs. actuals variance analysis and review
-
Payroll and HR Platform