• Key points on HSA and FSA

    • Enrollment in a Health Savings Account (HSA) requires a High Deductible Health Plan (HDHP). The contribution limit for a family plan is twice that of an individual plan.
    • An HSA is inherently an individual account, regardless of whether the associated HDHP is for an individual or a family. However, authorized users can be added for your spouse and dependents, even if the HDHP is an individual one.
    • Having an HSA means your spouse cannot possess a “full-fledged” Flexible Spending Account (FSA), even if they aren’t covered by your insurance. This is due to the double dipping rule, as your spouse has the potential to be covered by your HSA, whether they actually are or not, please see this link for chart. However, each of you can have a Limited Purpose FSA (LPFSA) — commonly enrolled along with an HSA — to cover dental and vision expenses, and medical expenses after meeting the deductible. The combined debit card for HSA and LPFSA is designed to automatically manage transactions accurately.
    • If you inadvertently enrolled in an FSA when not permitted, you can request your employer to correct it, or you can add the pre-taxed amount back to your income when filing your taxes.

  • Details on HSA:

    • (+) Contribution is tax deductible. You can contribute via payroll or yourself. Payroll is better as it skips the FICA taxes as well.
    • (+) You can invest just like a broker account.
    • (+) No “use it or lose it”. The account is yours.
    • (+) Distribution for medical expenses is tax free.
    • (+) You contribute any time during the plan year.
    • (+) You can pay for prior years’ expenses as long as you keep receipts.
    • (+) You can pay for family members regardless the HDHP is single or family.
    • (+) Used for retirement if (age >= 65). Pay normal tax but no penalty, like IRA.
    • (-) Contribution limit is $3,650 (single HDHP, 2022) and $7,300 (family HDHP, 2022). +$1,000 if (age >= 55) for either single or family.
    • (-) Cannot have regular FSA even for spouse not covered by the HDHP because the FSA covers the entire family.
    • (-) Cannot have regular FSA with balance after plan expiration after 12/31 (grace period, rollover).
    • (-) Can have Limited Purpose FSA (LPFSA): LPFSA can be used for dental and vision expense anytime. However for other medical expense, you will need to meet all deductible before using LPFSA. When using debit card, it will use fund from LPFSA first when possible.
    • (-) Married people: if either spouse has a family HDHP, both treated having family HDHP. The combined contribution is $7,300 (2022) split between spouses equally or otherwise.
    • (-) 20% penalty for non-qualified expenses.
    • (-) 06% penalty for over contribution (leave on the account towards next year’s quota).
    • (-) California does not honor HSA for state tax purpose.

  • Details on FSA:

    • (+) Contribution is tax deductible.
    • (+) 2.5 months grace period for reimbursement if plan allows it.
    • (+) $570 (2022) rollover if plan allows it, any funds over this amount will be lost.
    • (+) Distribution for medical expenses is tax free.
    • (+) You can pay for family members.
    • (+) Both spouses can each have an FSA.
    • (+) FSA fund becomes available from day 1 (you do not need to pay back when you leave the company).
    • (-) Contribution limit is $2850 (2020) per plan.

  • Additional notes:

    • You are eligible to setup an HSA account when you have High Deductible Health Plan (HDHP). The premium for HDHP is low, and it is likely to be covered entirely by the employer for employee only plan. It is more suitable for someone who is healthy, not expecting to have large expenses.
    • The HSA is less restrictive than FSA, so the order of contribution should HSA, and then LPFSA, i.e. after contributing to the maximum on HSA, then consider to contribute on LPFSA. The spending order should be reverse, i.e. use LPFSA first, and then HSA, fortunately this is automatic if you use debit card.