What Are FSA and HSA Cards and How Do They Work?

Health savings accounts (HSAs) and flexible spending accounts (FSAs) are tax-advantaged financial tools designed to help manage healthcare expenses. They allow individuals to set aside pre-tax dollars for eligible medical services and products. Understanding how these mechanisms function is important for optimizing personal healthcare spending.

Health Savings Accounts (HSAs)

A Health Savings Account (HSA) serves as a long-term savings and investment vehicle specifically for healthcare expenses. It allows individuals to contribute funds on a tax-advantaged basis, which can then be used to pay for qualified medical costs. An HSA provides a flexible and portable way to manage current and future healthcare expenditures.

To be eligible for an HSA, an individual must be enrolled in a High-Deductible Health Plan (HDHP) and meet specific Internal Revenue Service (IRS) requirements. For 2025, an HDHP must have a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. Additionally, the plan’s out-of-pocket maximum cannot exceed $8,300 for self-only coverage or $16,600 for family coverage. Individuals cannot be enrolled in Medicare, nor can they be claimed as a dependent on someone else’s tax return.

Contributions to an HSA can come from the employee, an employer, or a third party. These contributions are made on a pre-tax basis through payroll deductions or are tax-deductible if made directly. For 2025, the annual contribution limit for self-only coverage is $4,300, and for family coverage, it is $8,550. Individuals aged 55 and over can contribute an additional $1,000 as a catch-up contribution.

HSA funds cover a wide range of qualified medical expenses, including deductibles, copayments, prescriptions, and vision and dental care. Funds within an HSA can be invested, allowing for potential tax-free growth over time. HSAs are portable; the account is owned by the individual and remains with them regardless of employment changes. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.

Flexible Spending Accounts (FSAs)

A Flexible Spending Account (FSA) is an employer-sponsored benefit designed to help individuals pay for anticipated healthcare expenses within a specific plan year. Unlike HSAs, FSAs are typically offered as part of an employer’s benefits package and are not tied to enrollment in a high-deductible health plan. They provide a way for employees to use pre-tax income for eligible medical costs, reducing their taxable income.

Contributions to an FSA are made through pre-tax payroll deductions, with the employee determining their annual election amount at the beginning of the plan year. Employers may also contribute to an employee’s FSA, though this is not universally offered. For 2025, the maximum amount an employee can contribute to a healthcare FSA is $3,300.

Eligible medical expenses for FSAs are similar to those for HSAs, covering categories such as deductibles, copayments, prescriptions, and vision and dental services. Over-the-counter medications and certain medical supplies are also generally eligible without a prescription. The IRS provides guidance on what constitutes a qualified medical expense in Publication 502.

FSAs are subject to a “use-it-or-lose-it” rule, meaning unused funds are typically forfeited at year-end. Employers may offer exceptions: a grace period (an additional 2.5 months to incur expenses) or a limited carryover (up to $660 for 2025). FSAs are employer-owned and generally not portable if employment ends.

Using Your FSA and HSA Cards

Both Flexible Spending Accounts and Health Savings Accounts often come with a debit card, simplifying the process of paying for qualified medical expenses. These cards function much like a regular debit card at healthcare providers, pharmacies, and other eligible merchants. When making a purchase, the card directly accesses the funds in the account, eliminating the need for upfront payment and subsequent reimbursement for many transactions.

For online purchases, the card can typically be used directly on the vendor’s website. Ensure the online retailer accepts FSA or HSA cards for payment.

Users may occasionally be required to provide documentation, such as receipts or an Explanation of Benefits (EOB), to substantiate that a purchase was for an eligible expense. For larger or less common medical items, the card transaction might be flagged for review, necessitating the submission of supporting paperwork to the plan administrator.

If a card is declined, or if substantiation is requested and not provided, individuals may need to pay out-of-pocket and then seek reimbursement. Keeping detailed records and retaining receipts for purchases made with the card is good practice.

Key Distinctions Between HSAs and FSAs

While both HSAs and FSAs offer tax advantages for healthcare expenses, they differ significantly in structure and utility.

Eligibility is a primary distinction: HSAs require enrollment in a high-deductible health plan, whereas FSAs are employer-sponsored benefits not tied to a specific health plan type.

Ownership and portability also vary. HSAs are individual-owned accounts that remain with the accountholder regardless of employment changes. FSAs are employer-owned and generally not portable if employment ends.

HSAs allow funds to be invested for potential growth over time, a feature not available with FSAs, which are primarily short-term spending accounts.

Finally, HSAs permit unlimited carryover of balances year-to-year, fostering long-term savings. FSAs are subject to a “use-it-or-lose-it” rule, though employers may offer limited exceptions like a grace period or a small carryover amount.