Medical expenses can come as a unexpected burden if you don’t have proper coverage. Luckily, you may be eligible to enroll into a Health Savings Account or a Flexible Spending Account based which can lighten the load of some expenses and these plans can come out of your pay – pretax!
What is HSA / FSA?
Health Savings Accounts (HSA) and Flexible Spending Accounts (FSA) are essentially personally savings accounts. However, the funds can only be used for qualified medical expenses.
Both accounts work similarly and are usually withdrawn from an employee’s check, pre-tax which also reduced their tax liability. The employee also can choose how much they contribute to their account.
Some employers offer both HSA and FSA accounts for employees, depending upon the insurance plan they offer.
What’s the difference?
It can be easy to confuse the two accounts but they do have distinct differences. Before opening your own account, you want to be sure which best suites your needs. The table below compares the differences between both.
|Health Savings Account (HSA)||Flexible Spending Account(FSA)|
|Eligibility Requirements||Must be enrolled in a high deductible health plan||No requirements|
|Contribution Limit||$3,450 for individuals
$6,900 for families
|$2,650 regardless of status|
|Changing Contribution Amount||Contribution amount may be changed at any time||Contribution amounts may only be changed during open enrollment, unless there is a change in employment or family status|
|Rollover||Unused funds may be used the following year||FSA are known as “use it, or lose it” and do not roll over|
|Account Owner||As the account is usually set up by an employee, this type of fund may be transferred from employer to employer||This account is owned by the employer. Any unused funds may be claimed by the employer at end of year|
|Effect on Taxes||Contributions can be a tax deductible or be taken out of pay pre-tax||Contributions are pre-tax and distributions are untaxed|
|Access to Money||Employee only has access to what has been deposited into their account||Employee has complete access to their election at any time, regardless if they’ve contributed funds|
|Proof||Employee must keep track of their own funds and must report their distributions on a Form 8889||Employee must provide written statement from third-party that demonstrates their expense and amount|
Eligible Expenses – HSA
Funds you withdraw from your HSA account are tax-free when used to pay for qualified medical expenses. The expenses must be used for a medical need or preventive care.
Any funds withdraw for a non-medical use, or non-qualifying medical expense will be taxed at your income tax rate in addition to 20%, if you’re under the age of 65.
Below is a list of commonly used qualified expenses:
- Dental Treatment
- Drug Treatment
- Eye Exam and Eye Needs ( ie. glasses, contact lenses, vision correction surgery)
- Laboratory Fees
- Long-Term Care
- Hearing Aids
- Weight-Loss Program
- Surgical Operations
Eligible Expenses – FSA
Like Health savings accounts, Flexible spending accounts can be used for a variety health related services, in addition to health related products.
Some of the eligible health care treatments and services include:
- Doctor’s Visits
- Dental Treatments including X-Rays & Cleanings
- Eyeglasses & Vision Exams
- Surgeries, excluding cosmetic
- Physical Therapy
- Over-the-counter medications (if prescribed by a doctor)
- Drug Prescriptions
- Crutches, Walker, Wheelchair
- Artificial Teeth
For a complete list of eligible and ineligible expenses, visit IRS at irs.gov
Why not use it for a dental savings plan?
Many dental offices today are offering alternatives for patients that do not have dental insurance. By offering an internal membership plan, dental practices are able to bypass insurance companies and offer deep discounts for patients that do not have insurance.
A typical in-office savings plan will cover all preventative services and offer discounts on other services, like perio maintenance, restorative and even cosmetic for a set price for the year. Since there is no middle man, there are no waiting periods and you’re instantly approved. If you currently are enrolled in a FSA or HSA program, we have great news for you. These plans are an eligible expense!
Contact your local dental office to see if they offer an in-house membership and remember, most funds expire at the end of the year. Be sure to use them before you lose them!