difference between an HSA and an HCFSA

We review the significant differences between a Health Savings Account (HSA) and a Healthcare Flexible Spending Account (HCFSA).

For Federal Employees who are enrolled in FEHB, it is important to know that you can’t have both an HSA and a HCFSA in tandem because those who have an HSA are not eligible to own an HCFSA as well. The other eligibility requirement for an HCFSA is that the federal employee or retiree must be eligible to enroll in FEHB even if they don’t aren’t enrolled in the Federal Employee Health Benefits (FEHB) program. For a Health Savings Account, federal employees or retirees must be enrolled in an HDHP (high-deductible health plan) prior to opening their HSA. Additionally, they can’t be enrolled in Medicare A, B, C, or D, they can’t have access to non-HDHP coverage through neither their self nor spouse, and they are not allowed to be a dependent on someone else’s federal tax return.


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By far, what distinguishes an HSA from an HCFSA is that unused money remaining in an HCFSA must be forfeited at the end of the year, with only $570 (for 2023) of that available to rollover into the following year’s HCFSA. Money in an HSA remains the property of the owner and can be passed to a beneficiary after death.

Tax Benefits

For an HSA, the tax benefits are three-fold:

    • Contributions made to a Health Savings Account are tax-deductible similar to IRA contributions. Unlike IRA contributions, however, there are no AGI limits restricting eligibility. The maximum contribution amount for 2023 is $3850 for an individual and $7750 for a family. (The minimum deductible to qualify for an HDHP for 2023 is $1500 for an individual and $3000 for a family. Out-of-pocket expenses for that HDHP are capped at $7500 for an individual and $15,000 for family coverage.)

    • Distributions from an HSA are tax-free as long as the money is used for qualifying medical expense for yourself, spouse, or dependent even if those family members are not covered by the HDHP. Qualifying expenses include medical, dental, vision, and long-term care costs. Unless you are 100% disabled, withdrawals from an HSA for non-qualified expenses are subject to a 20% penalty from the IRS.

    • Any earnings from investments within an HSA are potentially tax-free. If used for a qualifying medical expense, when earnings are withdrawn, they are no subject to state or federal taxes.

With a Healthcare Flexible Spending Account, the contributions are made pre-tax with up to $500 matched by your agency’s payroll provider. The biggest advantage to an HCFSA is there are a lot more qualifying expenses than an HSA, including massages, childcare, and even sunblock. See a full list here. But remember, unlike an HSA, the funds are use-it-or-lose-it for the calendar year and you must reenroll before January 1st every year. OPM claims families can save up to 30% every year on healthcare costs with an HCFSA. The 2023 contribution limits is $3050 + up to $500 employer match for $3550 total.

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Until Next Time,

Benefits Ben, STWS

**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.

difference between an HSA and an HCFSA

Difference Between an HSA and an HCFSA