Flexible Spending Account (FSA) OR Health Savings Account (HSA)
Trying to choose between a health savings account (HSA) and a flexible spending account (FSA) can be one of the confusing decisions to make. In general, electing to sign up for an HSA or FSA is smart. Both HSAs and FSAs allow people with health insurance to set aside money for health care costs referred to as qualified expenses including deductibles, co-payments and coinsurance and monthly prescription costs.
If you work for a big company, chances are you have a Flexible Spending Arrangement plan available through work. If so, do you have any idea how they work?
You (and your spouse, if he or she has a plan available at work) can contribute up to $2,600 to your health FSA plan from your salary in 2017. Why would you do that? For starters, contributions to your FSA aren’t subject to income taxes or payroll taxes such as social security and medicare taxes. That means a contribution of $2,600 to your plan will reduce your taxable income and save you money on your taxes. (I thought that would get your attention.)
Despite the many benefits of FSAs, most employees don’t take full advantage of flex-spend accounts, and the average contribution is only $1,427. The money you contribute to your FSA can be used for various types of expenses, such as dependent care and medical expenses. You can contribute up to $5,000 to your dependent care FSA in 2017.
HSA stands for Health Savings Account, and it is a handy way to save for medical expenses and reduce your taxable income. If you are enrolled in a high-deductible health insurance plan (HDHP) as defined by the government, you can qualify for an HSA. For 2017, the IRS defines an HDHP for an individual as a plan with an out-of-pocket maximum of $6,550 and a minimum deductible of $1,300.
For a family plan in 2017, the out-of-pocket maximum is $13,100 and the minimum deductible is $2,600.
Both types of accounts have tax benefits, too, although those benefits aren’t the same.
Knowing which one to select and how to get the most out of it is very important.
Don’t worry which one of them would be good for you! At Mathews CPA Inc. we will ask you simple questions about you and help you decide on the account best for you based on your answers.