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FSA or HSA? Choosing Between Health Accounts

10/12/2016

 
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Are you confused about your choices for paying medical expenses under your employer's benefit plan? Here are differences between two types of commonly offered accounts: a health savings account (HSA) and a health care flexible spending account (FSA).

Overview

An FSA is generally established under an employer’s benefit plan. You can set aside a portion of your salary on a pretax basis to pay out-of-pocket medical expenses.

An HSA is a combination of a high-deductible health plan and a savings account in which you save pretax dollars to pay medical expenses not covered by the insurance.

Contributions

For 2016, you can contribute up to a maximum of $2,550 to an FSA. Typically, you have to use the funds by the end of the year.

Why?

Unused amounts are forfeited under what’s commonly called the “use it or lose it” rule. However, your employer can adopt one of two exceptions to the rule.

If you are single, the 2016 HSA contribution limit is $3,350 ($6,750 for a family). You can add a catch-up contribution of $1,000 if you are over age 55. You do not have to spend all the money you contribute to your HSA each year. You can leave the funds in the account and let the earnings grow.

Earnings

FSAs do not earn interest. Your employer holds your money until you request reimbursement for qualified expenses.

HSAs are savings accounts, and the money in the account can be invested. Earnings held in the account are not included in your income.

Withdrawals

Distributions from both accounts are tax- and penalty-free as long as you use the funds for qualified medical expenses.

Portability

​
Normally, your FSA stays with your employer when you change jobs. Your HSA belongs to you, and you can take the account funds with you from job to job. That’s true even if your employer makes contributions to your HSA for you.

Because you generally can’t contribute to both accounts in the same year, understanding the differences can help you make a decision that best fits your circumstances.
This is general information and should not be acted upon without first determining its application to your specific situation. Please contact your CPA or tax advisor for additional details.
​

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    Successfully meeting the challenges inherent to new and smaller businesses provides me with a special type of satisfaction. 

    Supporting businesses that have the potential to become amazing – from both the perspective of owners and team members as well as their clients – is what I enjoy. 

    I hope to use this blog to provide information specific to businesses that are growing from small beginnings into exceptional companies.

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  • Home
  • Why Us?
    • Reviews
    • Open Positions
  • Client Services
  • Resources
    • Save on QBO Subscriptions!
    • Tax Refund Status
    • Gusto Year End Checklist
    • Videos >
      • Business Taxes >
        • 2019 Business Tax Highlights
        • 7 Ways Small Business Can Save On Tax
        • Taxes for S-Corp Owners
        • The IRS Loves Businesses
      • Personal Taxes >
        • 2019 Tax Highlights
        • Five Yearly Tax Essentials
        • 4 Common Tax Surprises
        • Retirement Can Be Taxing
        • Advance Child Tax Credit Reconciliation - 2022
        • Make the Most of Your Donations
        • Five Great Tax Secrets
        • Renting Your Property Tax Free
        • Ideas to Audit-Proof Your Tax Return
      • The Tax Cuts & Jobs Act >
        • The Tax Cuts & Jobs Act: What You Need to Do Now
        • The Tax Cuts & Jobs Act: Are Itemized Deductions A Thing of the Past?
        • The Tax Cuts & Jobs Act: The New Child Care Tax Credit
      • Tax Topics >
        • Tax Season is Coming!
        • The New World of Deductions: What Everyone Needs to Know
        • Proving Your Deductions
        • How to Fix a Mistake on Your Tax Return
        • How Long Should I Save It?
        • Tax Credit vs Tax Deduction
        • Understanding Effective Tax Rate
        • Understanding Marginal Tax Rate
      • Life Events >
        • Life Events: A New Birth
        • Life Events: Marriage
        • Life Events: Divorce
    • Articles >
      • Accounting & Bookkeeping >
        • How to Get the Most Out of Your Accounting Fees
        • The 10 Biggest Money Leaks in Your Accounting System
      • Business Factors >
        • IRS Rules for Classifying Workers
        • Checklist for a Healthy Cash Flow
        • 12 Ways to Improve Your Business Profits
        • 10 Step Annual Business Check-Up
      • Tax Topics >
        • Tax Guide for Self-Employeds
        • 15 Things Every Tax Payer Should Know
        • Disaster Casualty Losses
        • Travel & Entertainment Deductions
        • Tax Guide - A Deduction Checklist
        • What You Should Know About Tax Audits
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      • Newsletters - Monthly Editions >
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