--- title: Understanding HSAs and FSAs - Ahola description: Health savings accounts and flexible spending accounts are two helpful ways to pay for medical expenses. Click through to learn the pros and cons of each. image: https://blog.ahola.com/hubfs/Imported_Blog_Media/canstockphoto14782485.jpg --- Start typing and press Enter to search * * # Understanding HSAs and FSAs [Home](https://www.ahola.com/) » [News & Events](https://blog.ahola.com/understanding-hsas-and-fsas) » Understanding HSAs and FSAs [2019-07-23%2012:29:44](2019-07-23%2012:29:44) ![](https://blog.ahola.com/hubfs/Imported_Blog_Media/canstockphoto14782485.jpg) ## Understanding HSAs and FSAs By [ aholaadmin ](https://blog.ahola.com/author/aholaadmin)  Posted [ July 23, 2019](2019-07-23%2012:29:44)  In  [Benefits](https://blog.ahola.com/tag/benefits), [Human Resources](https://blog.ahola.com/tag/human-resources), [Employees](https://blog.ahola.com/tag/employees) - - - - - > *An HSA is portable. It stays with your employees even if they leave your company or the workforce…* ### Health Savings Account (HSA) As** [explained by the IRS](http://www.irs.gov/publications/p969/ar02.html#en_US_2014_publink1000204020)**, a health savings account is a tax-exempt trust or custodial account used to “pay or reimburse certain medical expenses you incur; you must be an eligible individual to qualify for an HSA.” Companies don’t need authorization from the IRS to establish one. Companies can just set one up with a trustee, typically a bank or an insurance company. There are several powerful advantages for your employees: - Contributions to an HSA made by an employer (including contributions made through a cafeteria plan) may be excluded from gross income. - The contributions remain in an employee’s account until they’re used. - The interest or other earnings on the assets in the account are tax-free. - Distributions may be tax-free if you pay qualified medical expenses. - Employees can change contribution levels throughout the year. - An HSA is “portable.” It stays with your employees even if they leave your company or the workforce. To offer your employees such a plan, however, you have to offer a high-deductible health plan, which, as the name says, has a higher deductible than is typical. In brief, the HSA and HDHP are designed to work in partnership to provide full coverage. ### Flexible Spending Account (FSA) A FSA has much the same purpose as an HSA but operates under different rules. Under such a plan, your employees set aside a certain amount of money for medical expenses: - No federal or employment taxes are deducted from this amount. - An employer may contribute, but doesn’t have to. - Withdrawals may be made tax-free. - Money may be spent in advance, as long as the employee has made a commitment to the salary reduction agreement. - Unlike with HSAs, these are “use it or lose it” plans. With few exceptions, money not spent at the end of the calendar year is lost. - Employees can’t alter their annual contribution amounts unless there is a major family change. From the employer’s viewpoint, the FSA is easier to set up. It can be offered in conjunction with other plans and is not bound to a HDHP the way an HSA is. ### Can You Offer Both? In word, no. The government allows employers to offer only one or the other. However, it does offer a small loophole: an employer may offer a “limited purpose” FSA in conjunction with an HSA. Such a limited plan may be applied just to dental or vision expenses, for example. Want more information on setting up HSAs and FSAs? [**Contact us today.**](https://www.ahola.com/request-a-demo/) Copyright © 2019     ### Reply a Comment ## RELATED POSTS [![](https://blog.ahola.com/hubfs/IRS-2.jpg) ](https://blog.ahola.com/irs-announces-2025-changes-to-health-savings-accounts) [IRS Announces 2025 Changes to Health Savings Accounts](https://blog.ahola.com/irs-announces-2025-changes-to-health-savings-accounts) [![](https://blog.ahola.com/hubfs/Imported_Blog_Media/qtq80-kJarXF.jpeg) ](https://blog.ahola.com/irs-announces-adjusted-hsa-numbers-for-2021) [IRS Announces Adjusted HSA Numbers for 2021](https://blog.ahola.com/irs-announces-adjusted-hsa-numbers-for-2021) [![](https://blog.ahola.com/hubfs/Imported_Blog_Media/qtq80-PXiCIi-4.jpeg) ](https://blog.ahola.com/sick-and-family-leave-reporting-guidance-in-2022) [Sick and Family Leave Reporting Guidance in 2022](https://blog.ahola.com/sick-and-family-leave-reporting-guidance-in-2022) ## SUBSCRIBE ### Recent posts - [Professionalizing HR Without Losing Your Family Culture ](https://blog.ahola.com/professionalizing-hr-without-losing-your-family-culture) - [Why Encouraging Employees to Take Summer Vacation Benefits Your Workplace ](https://blog.ahola.com/why-encouraging-employees-to-take-summer-vacation-benefits-your-workplace) - [Ahola Named a 2026 Top Workplace — Six Years Running! ](https://blog.ahola.com/ahola-named-a-2026-top-workplace) - ### Topics - [Affordable Care Act (13)](https://blog.ahola.com/tag/affordable-care-act) - [Benefits (223)](https://blog.ahola.com/tag/benefits) - [Cybersecurity (1)](https://blog.ahola.com/tag/cybersecurity) - [Employee Engagement (255)](https://blog.ahola.com/tag/employee-engagement) - [Employees (603)](https://blog.ahola.com/tag/employees) - [Family Business Insights (10)](https://blog.ahola.com/tag/family-business-insights) - [Hiring (282)](https://blog.ahola.com/tag/hiring) - [Human Resources (645)](https://blog.ahola.com/tag/human-resources) - [Laws/Policies (26)](https://blog.ahola.com/tag/laws-policies) - [Managing COVID-19 (153)](https://blog.ahola.com/tag/managing-covid-19) - [News Release (56)](https://blog.ahola.com/tag/news-release) - [Offboarding (3)](https://blog.ahola.com/tag/offboarding) - [onboarding (7)](https://blog.ahola.com/tag/onboarding) - [Payroll (428)](https://blog.ahola.com/tag/payroll) - [Recruiting (142)](https://blog.ahola.com/tag/recruiting) - [Safety (121)](https://blog.ahola.com/tag/safety) - [Tax Compliance (230)](https://blog.ahola.com/tag/tax-compliance) - [Time & Attendance (124)](https://blog.ahola.com/tag/time-attendance) - [Training & Development (214)](https://blog.ahola.com/tag/training-development) - [Trending Topic (75)](https://blog.ahola.com/tag/trending-topic) - [Uncategorized (1)](https://blog.ahola.com/tag/uncategorized) - [Webinars (69)](https://blog.ahola.com/tag/webinars) - [Workers Comp (1)](https://blog.ahola.com/tag/workers-comp) [see all topics](https://blog.ahola.com/understanding-hsas-and-fsas#) ### GENERAL DISCLAIMER This blog is for informational and educational purposes only. It does not constitute legal advice, and cannot constitute legal advice, because the authors are not licensed attorneys. Readers should not rely or act upon any information presented on this blog without seeking professional legal counsel. The views expressed in each post are those of the author, and the author alone; they are not the views of Ahola. The information provided in this blog is general, and based on information available as of the date of publishing. Information herein is provided on an “as is” or “as available” basis; we make no warranty of any kind to you regarding the information provided and disclaim any liability for damages from use of the blog or its content. Please consult an attorney to obtain advice with respect to any particular question or issue. [![](https://blog.ahola.com/hubfs/Imported_Blog_Media/desk-accessories.jpg) Key Metrics for Measuring Employee Performance An HSA is portable. 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