Can You Have an HSA and FSA in the Same Household?

To help manage healthcare costs, the Internal Revenue Service (IRS) offers tax-advantaged savings options: Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). These accounts allow individuals to set aside pre-tax money for qualified medical expenses, potentially reducing their taxable income.

Understanding Health Savings Accounts and Flexible Spending Accounts

Health Savings Accounts (HSAs) are individual accounts established with a qualified trustee, such as a bank or insurance company. To be eligible for an HSA, an individual must be covered by a High-Deductible Health Plan (HDHP) and not have other health coverage. These accounts offer a “triple tax advantage”: contributions are tax-deductible, earnings grow tax-free, and qualified withdrawals are also tax-free. Funds in an HSA remain with the individual and roll over year after year, even if employment changes.

Flexible Spending Accounts (FSAs), particularly General Purpose FSAs, are employer-sponsored benefits. They allow employees to set aside pre-tax funds through payroll deductions for a broad range of qualified medical, dental, and vision expenses. A General Purpose FSA’s defining characteristic is the “use-it-or-lose-it” rule, meaning any unspent funds at the end of the plan year are forfeited to the employer. Employers may offer a grace period or allow a limited carryover amount to the next year. Unlike HSAs, FSAs are employer-owned accounts, and funds do not roll over if you leave your employer.

Household Combinations and Conflicts

An individual cannot have both a Health Savings Account (HSA) and a General Purpose Flexible Spending Account (FSA) simultaneously. The broad coverage of a General Purpose FSA conflicts with the High-Deductible Health Plan (HDHP) requirement for HSA eligibility. If an individual inadvertently has both, they may lose HSA eligibility and face tax penalties on contributions. This restriction applies even if a spouse has a General Purpose FSA that covers the individual.

It is possible for a household to utilize both an HSA and certain types of FSAs. A Limited Purpose Flexible Spending Account (LPFSA) is designed to coexist with an HSA because its use is restricted to dental and vision expenses only. Since LPFSAs do not cover general medical expenses, they do not disqualify an individual from HSA eligibility. For example, one spouse might have an HDHP and an HSA, while the other spouse, or the HSA holder, could also have an LPFSA for dental and vision costs.

Another FSA type that does not interfere with HSA eligibility is a Dependent Care Flexible Spending Account (DCFSA). A DCFSA is for childcare expenses that enable parents to work or look for work. Since DCFSAs are for dependent care and not medical expenses, they are compatible with an HSA. A household could maintain an HSA for medical needs and a DCFSA for qualifying childcare costs without conflict.

Some employers may offer a Post-Deductible FSA, which allows an individual to contribute to an FSA that only becomes accessible for general medical expenses after the HDHP deductible has been met. This type of FSA can also coexist with an HSA. Households considering these combinations should confirm their plan details. Married couples cannot have a joint HSA; each eligible spouse must open a separate HSA, though distributions can cover the other spouse’s qualified expenses.

Using Your Funds and Reimbursement

Both Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) cover qualified medical expenses, including doctor visits, prescription medications, dental care, and vision care. Funds can be accessed through a dedicated debit card provided by the plan administrator, or by submitting receipts for reimbursement after out-of-pocket payments.

A key difference in how funds are used relates to the “use-it-or-lose-it” rule for FSAs. Employers may offer a grace period or allow a limited carryover of funds into the next year, but any remaining funds beyond these provisions are forfeited. Employers can offer either a grace period or a carryover, but not both. In contrast, HSA funds do not expire and roll over year to year, allowing for long-term savings and investment.

For households with both an HSA and a Limited Purpose FSA (LPFSA), a common strategy involves using LPFSA funds first for eligible dental and vision expenses. This approach helps deplete the LPFSA balance, which is subject to the “use-it-or-lose-it” rule, while preserving HSA funds. Preserving HSA funds allows them to grow tax-free through investment or be saved for future medical expenses or retirement healthcare costs.

Tax Advantages and Reporting

Health Savings Accounts (HSAs) provide tax benefits, known as a “triple tax advantage.” Contributions made by an individual are tax-deductible, even without itemizing deductions. Employer contributions to an HSA are excluded from an individual’s gross income. Earnings and interest within the HSA grow tax-free, and withdrawals for qualified medical expenses are also tax-free. However, distributions for non-qualified expenses before age 65 are subject to income tax and a 20% penalty.

Flexible Spending Accounts (FSAs) also offer tax advantages, primarily through pre-tax contributions. Funds contributed to an FSA are deducted from an employee’s paycheck before taxes, reducing their taxable income. Qualified withdrawals from an FSA are tax-free, similar to an HSA. Both types of accounts have annual contribution limits set by the IRS, which are subject to change.

For tax reporting, individuals with HSAs receive Form 1099-SA for distributions and Form 5498-SA for contributions. These forms assist in completing tax documents, such as Form 8889, Health Savings Accounts (HSAs). It is important to maintain records of all qualified medical expenses and reimbursements to substantiate tax-free withdrawals from both HSAs and FSAs.