FSA? HSA? WTF?
It’s time to consider your health insurance plan for 2022 (ah, the joys of adults!) When it comes to health insurance plans and benefits, there are a ton of jargon and acronyms. FSA and HSA are two that you’ve probably already seen.
what does fsa mean flexible spending account Whereas HSA means health savings account, Both an FSA and an HSA are accounts that you fund with a portion of your pre-tax income. You can use these funds on medical expenses—and because you’re using pre-tax money, you can essentially think of these purchases as deductible. this is Estimated That you can save about 30% on medical purchases through an FSA or HSA. Of course, there’s a limit to how much money you can contribute, but that money is yours that you can use on qualified medical purchases for the year. Most of the expenses you incur in the hospital, of course, qualify, but a good amount of what you already have in your bathroom is worth it; Things like a first aid kit, sunscreen, allergy meds, chapstick, etc.
What is the opposite?
The advantage of using an FSA and an HSA is the principle of pre-tax contributions. Let’s say your annual salary is $50,000. If you decide to forgo the FSA or HSA option, then, come tax season, Uncle Sam is presented with all of your $50,000 money. That means after taxes, you’re probably going to be taking home about $35,000. Oops.
Now come the medical expenses. Later covid For tests, hospital check-ups and trips to the pharmacy, let’s say you spent about $2,000 on medical care. So when all is said and done, you have $33,000 left in your pocket.
Let’s look at the same example now, but you have an FSA or an HSA. Let’s look back when we were looking at your gross annual salary, $50,000. Since you have an FSA, you must contribute the $2,000 you expect to spend on medical expenses. before this Uncle Sam has a chance to tax you.
So, once you deposit that $2,000 into your FSA account, the IRS taxes you. Well Adjust Pay: $50,000 minus your FSA contribution, leaving you with $48,000 to work with. Assuming the same tax rate after taxes, you’ll be left with $33,600 in your pocket.
In the non-FSA example, you only had $33,000 in your pocket after taxes. So, you just saved $600! Sweet!
How are FSAs and HSAs Different?
There are some important differences between an FSA and an HSA. In general, HSAs can be a slightly more specialized club. That is, in large part because there are higher eligibility requirements for HSAs than for FSAs. To be admitted to an HSA group, you need to be enrolled in a high-deductible health insurance plan. And, if you’re eligible for Medicare and/or you can’t be claimed as a dependent on someone else’s task return—as per the HSA, you can’t sit with us.
For FSAs, the only barrier to entry is that FSAs are required to be established by the employer. And for all of us self-employed, business owners can only contribute to an FSA if they own less than 2% of the company.
But, while HSAs have more hoops to jump through to enroll, the payout may be better than with an FSA. Because with an HSA, the unused funds in your account at the end of the year are carried over into the next year.
With an FSA, for the most part, unused money doesn’t get rolled over. However, some health plans allow a small amount of carry-over. In 2020, the maximum you could take in the new year was $50. But in 2021, that carry-over maximum was raised to $550 because, you know, it was a pandemic. Even then! If you contributed $2,000 and didn’t touch any of it—even after carrying $550—you’ve still lost $1,450! So in some ways, HSAs are actually more flexible than so-called “flexible savings accounts.” You must love finance jargon.
Also, you can contribute more to your HSA than your FSA. In 2021, the amount you can contribute to your HSA as a single, unmarried individual is $3,600, while with an FSA, the contribution limit is $2,750.
I am sold on -SAs. How much should I contribute?
Here it is a little dance. The more you contribute, the less adjusted income Uncle Sam can make, and we love that. But on the other hand, if you’re maxing out your FSA at $2,750, but you only spend $1,000 per year on qualified expenses, you’ll have $1,750 of unused funds. And remember—most of it doesn’t roll over, so you’re going to be terrorizing hundreds of Bandaids over the reimbursement deadline.
Use FSAFeds Calculator To help you figure out how much to contribute to your account. And if it’s an FSA, be sure to access your funds before it’s too late!