Getting the Most Out of Your HSA and FSA Accounts

A Health Savings Account (HSA) and Sec 125 Flexible Spending Account (FSA) can work together and maximize your out of pocket medical, dental and vision expenses with tax-free dollars for you, a legal spouse, and/or dependent(s).  However, you must be aware of how these two tax-free funds work together so that you do not “double dip” or inadvertently use the FSA or HSA for ineligible expenses.  This can result in significant tax penalties.

Elective contributions to an FSA plans are determined annually at the beginning of the year.  If you do not use all of the money contributed during the year on eligible medical expenses incurred during the year, you forfeit the balance in the account.  It is “use it or lose it” and unlike an HSA, the excess funds cannot be rolled over year by year.   Careful planning can result in the highest pre-tax dollars available under the current IRS rules.

Using HSA and FSA to the MAX!

Your HSA account must be used for the first $1,200 (single coverage) or $2,400 (family coverage) of out of pocket medical expenses, such as co-pays, deductibles, and prescriptions, regardless of what your HSA health plan has as its deductible.  This limit is adjusted annually and can be found in IRC section 223 (c)(2)(A)(i).  In addition, you can pay your long-term care insurance premiums from your HSA account.

If you want to use FSA money for out of pocket medical expenses, such as co-pays, deductibles, prescriptions, there are some guidelines you must meet.  Every year the IRS sets a HSA statutory deductible limit for HSA health plans.  This statutory deductible limit is used to determine WHEN you can be paid for MEDICAL expenses from your FSA account.  This year the IRS set the deductible limit as follows:

1. SINGLE coverage: it is $1,200 REGARDLESS of what your HSA health plan has as its deductible.
2. FAMILY coverage: it is $2,400 REGARDLESS of your HSA health plan has as its deductible.

Your HSA account should be funded to the maximum each year.  Your contribution to your FSA Plan will take careful planning and should be funded for all anticipated expenses.  

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Marianne Bloom is a Certified Public Accountant at Nasif, Hicks, Harris & Co., LLP.  Marianne can be reached via phone at (805) 963-5101 or e-mail at mbloom@nhhco.com.

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