• Key points on HSA and FSA

    • Require High Deductible Health Plan (HDHP) to enroll HSA.
    • HSA is YOUR pre-taxed saving account for medical purchase.
    • Cannot have FSA, even your spouse not covered by your HSA.
    • Can have Limited Purpose FSA (LPFSA) enrolled together with HSA for dental and vision.
    • HSA and LPFSA are in the same “smart” debit card which uses LPFSA first when possible.

  • 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.