Updated: Oct 8
Whats the difference????
HSA or health savings account is a savings account that allows an employee to pay and save for eligible healthcare expenses. These plans are funded with pre-tax dollars and are available to those enrolled in a HDHP (high deductible health plan). Unused funds are eligible to be rolled over the following year.
FSA or flexible spending account is also a savings account that also allows an employee to pay and save for eligible medical expenses. These plans are also funded with pre-tax dollars, however, you are not required to be enrolled in a HDHP (high deductible health plan). Unused funds in these plans are forfeited if not used in the plan year or grace period. Some employers offer a two and a half month grace period or allow up to $570 per year to be carried over to the following plan year. Employers may only offer a grace period or carry over but not both. Employers do not have to offer either one.
Note: due to coronavirus, employers were allowed some rollover changes from 2020 to 2021 and 2021 to 2022. These may or may not be extended to future years. Regardless, this only applies if your employer opts in. Here is what the IRS allows per Publication 969:
'A health FSA may allow participants to carry over unused benefits from a plan year ending in 2020 to a plan year ending in 2021 and from a plan year ending in 2021 to a plan year ending in 2022.
A health FSA may extend the grace period for using unused benefits for a plan year ending in 2020 or 2021 to 12 months after the end of the plan year.
A health FSA may allow an individual who ceases participation in a health FSA during calendar year 2020 or 2021 to continue to receive reimbursements from unused benefits through the end of the plan year in which participation ceased and through any grace period.'