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By Charlestien Harris

When you sign up for insurance, the agent or the company you work for gives you information to review, but you may not always understand what you are reading or the information can just become overwhelming. However, knowing the details of your plan is very important as they will definitely affect your finances. This blog about healthcare budgeting was written to help you better understand the difference between a health savings account (HSA) and a flexible spending account (FSA), and the benefits of both.

A health savings account is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan. The funds contributed to an account are not subject to federal income tax at the time of deposit and is often set up as a tax-exempt trust with a qualified trustee to pay or reimburse certain medical expenses. 

A qualified HSA trustee can be a bank, an insurance company, or anyone already approved by the IRS.  HSA accounts are available to all income levels and the account is tax free money that can be used to pay deductibles and other qualified health care expenses.  Individuals can contribute $3,600 to HSA accounts annually; families can contribute $7,200. Adults over the age of 55 can contribute an additional $1,000.  It differs from a flexible spending account because if the money is left unused in the health savings account it can’t be forfeited. 

Three tax benefits the HSA account offers is: contributions are tax deductible, withdrawals to pay qualified medical expenses are not taxable income and the balance can grow tax-free over the life of the account.  If you decide to withdraw money out of the account and you don’t use it to pay qualified medical expenses, you will more than likely be required to pay a tax penalty. 

A Flexible Spending Account is a special account you put money into that you use to pay for certain out-of-pocket health care costs.  You don’t pay taxes on this money either, but you do have to use the money in an FSA within your health plan year.  At the end of the year you lose any money left over in that account.  So for this reason it is very important to plan carefully and not put more money in your FSA that you think you will spend within a year on things like copayments, coinsurance, drugs and other allowable health care costs. 

FSAs are limited to $2,750 per year per employer and if you are married, your spouse can put up to $2, 750 in an FSA account with their employer also.  You can use the funds in your FSA to pay for certain medical and dental expenses for you, your spouse, and your dependents.  You can spend FSA funds to pay deductibles and copayments but not for insurance premiums.  Spending the funds on prescription medications, over-the-counter medicines with a doctor’s prescription are allowed also.  Other permissible medical related items such as crutches, bandages, blood pressure kits or blood sugar test kits are also included as allowable cost. 

Both the HSA and the FSA accounts will allow you to set money aside for medical expenses which will help you to better manage your financial budget when it comes to expected and unexpected medical expenses or medical emergencies.  If you have any additional questions or want more information about this or other financial related topics, contact me at or at 662-624-5776.  Until next week, stay financially fit!