FSA and HSA are both accounts where you set aside pre-tax money for medical costs, but they work under different rules and belong to different types of health plans

A Flexible Spending Account (FSA) is an employer-sponsored account where you contribute money before taxes are taken out, then use it to pay for may be able to access medical, dental, and vision expenses. An Health Savings Account (HSA) is a tax-advantaged savings account that only works with high-deductible health plans, and the money rolls over year to year instead of disappearing.

The core difference: FSAs are "use it or lose it" accounts tied to your job, while HSAs are portable accounts you own that let you build a long-term medical savings fund. Which one you can open depends entirely on what health insurance plan your employer offers.

Key Takeaways

  • FSAs are employer-run accounts where unused money at the end of the year is forfeited, though some plans allow a small carryover or grace period.
  • HSAs require enrollment in a high-deductible health plan and let you keep unused money indefinitely, making them a retirement savings tool.
  • Both accounts use pre-tax dollars, meaning the money you contribute reduces your taxable income for the year.
  • You cannot have both an FSA and an HSA in the same year, and your employer decides which option to offer.
  • may be able to access expenses are similar between the two — prescriptions, copays, dental work, glasses — but the rules for how you spend the money differ.

How FSAs work and what happens to unused money

When you enroll in an FSA during your employer's open enrollment period, you choose how much to contribute for the year — typically between $100 and $3,200 (the limit changes annually). That money is deducted from your paycheck before taxes, so if you contribute $2,000, your taxable income for the year drops by $2,000.

You then use a debit card or submit receipts to draw from the account to pay for may be able to access medical expenses. The catch is the "use it or lose it" rule: money you do not spend by the end of the plan year is forfeited and goes back to your employer. Some plans offer a small grace period (usually 2.5 months into the next year) or let you carry over up to $610 into the following year, but most do not.

Because of this rule, people typically contribute only what they are confident they will spend. If you overestimate, you lose money. If you underestimate, you pay out of pocket for expenses that could have been covered with pre-tax dollars.

How HSAs work and why unused money stays with you

An HSA is only available if your employer offers a high-deductible health plan (HDHP) — a plan with a higher deductible than traditional insurance but lower premiums. For 2024, the IRS defines a high-deductible plan as one with a deductible of at least $1,600 for individual coverage or $3,200 for family coverage (these numbers change yearly).

Like an FSA, you contribute pre-tax money and use it for may be able to access medical expenses. Unlike an FSA, any money you do not spend stays in the account. You own the HSA, not your employer, so if you change jobs or retire, the account goes with you. You can invest the money in stocks or bonds, and it can grow over decades.

This makes HSAs a retirement savings tool: some people use them primarily to build a medical fund for later in life, paying out of pocket for current expenses so the account can compound. There is no requirement to spend the money by a certain age.

Contribution limits and tax treatment

FSA contribution limits are set by the IRS and change yearly. For 2024, the limit is $3,200 for individual coverage. Your employer may set a lower limit, but cannot exceed the IRS maximum. You decide how much to contribute during open enrollment, and that amount is locked in for the year.

HSA contribution limits are also set by the IRS and also change yearly. For 2024, you can contribute up to $4,150 for individual coverage or $8,300 for family coverage. If your employer contributes to your HSA, that counts toward your limit. Unlike an FSA, you can contribute to an HSA even after the calendar year ends, as long as you do so before the tax filing deadline.

Both accounts reduce your taxable income dollar-for-dollar. If you earn $50,000 and contribute $2,000 to an FSA, you pay income tax on $48,000 instead. You also do not pay payroll taxes (Social Security and Medicare) on FSA or HSA contributions, which saves an additional 7.65% on top of income tax savings.

What expenses both accounts cover

FSAs and HSAs cover the same categories of may be able to access medical expenses: prescription medications, copayments and coinsurance, deductibles, dental work (cleanings, fillings, root canals, orthodontics), vision care (eye exams, glasses, contact lenses), hearing aids, mental health treatment, and physical therapy. Over-the-counter medications like pain relievers and allergy medicine are also covered if you have a prescription.

Expenses that do not may have access to include cosmetic procedures, gym memberships, vitamins (unless prescribed for a medical condition), and most wellness products. The IRS publishes a detailed list, and your plan administrator can tell you whether a specific expense qualifies.

The main practical difference is not what you can buy, but what happens if you do not spend the money. With an FSA, unspent money vanishes. With an HSA, it stays available forever.

You cannot have both an FSA and HSA in the same year

The IRS does not allow you to be enrolled in both an FSA and an HSA during the same calendar year. If your employer offers both, you must choose one. Some employers offer a limited-purpose FSA alongside an HSA — a version that covers only dental and vision expenses — but this is less common.

If you change jobs mid-year, you may be able to switch from one to the other, but the rules are strict. You generally cannot switch outside of open enrollment unless you have a may have access to life event (marriage, birth, loss of coverage, or significant change in circumstances). Check with your new employer's benefits administrator before assuming you can make a change.

Which account makes sense for your situation

Choose an FSA if you have predictable medical expenses each year and want to maximize your tax savings now. FSAs work well for people who know they will spend the money — for example, someone with regular prescriptions, ongoing dental work, or a child who needs glasses and hearing aids.

Choose an HSA if you want to build long-term savings, have a high-deductible plan anyway, and can afford to pay some medical costs out of pocket. HSAs work well for younger, healthier people who do not expect major medical expenses in the near term, or for anyone who wants a retirement savings vehicle specifically for healthcare costs.

If your employer offers only one option, the choice is made for you. If both are available, think about whether you will actually spend the FSA money by year-end. If you are unsure, an HSA is the safer choice because unused money does not disappear.

Frequently Asked Questions

What happens to my FSA money if I leave my job?

You lose access to it. FSA funds belong to your employer, and when you leave, you forfeit any remaining balance. Some employers allow a short window (usually 60 days) to submit claims for expenses you incurred before you left, but you cannot carry the account to a new job. An HSA, by contrast, moves with you.

Can I use my HSA to pay for my spouse's medical expenses?

Yes. HSA funds can be used for may be able to access medical expenses of you, your spouse, and any dependents you claim on your tax return, regardless of whether they are covered under your health plan. FSA rules are the same.

What if I contribute to an HSA but do not use the money?

It stays in the account and earns interest or investment returns. You can withdraw it tax-free for medical expenses at any time in the future. After age 65, you can withdraw money for any reason, though non-medical withdrawals are taxed as income (but not penalized).

Can I change my FSA contribution amount during the year?

Only if you have a may have access to life event — marriage, divorce, birth of a child, loss of other coverage, or significant change in circumstances. Otherwise, the amount you choose during open enrollment is locked in for the entire year.

Do I need receipts to use my FSA or HSA?

Yes. You must keep receipts and documentation showing the expense was may be able to access. If you use a debit card, the transaction may be flagged for verification. If you submit a claim by mail or online, attach the receipt. Keeping records protects you if the IRS audits your account.