What Is an FSA or HSA Card and How Do They Work?

Flexible Spending Account (FSA) and Health Savings Account (HSA) cards are specialized debit cards used to pay for eligible medical expenses. These cards offer a convenient way to access tax-advantaged funds set aside for healthcare costs. Understanding their distinct characteristics is key to effectively using these financial tools.

The Flexible Spending Account (FSA) Card

An FSA card is linked to a Flexible Spending Account, an employer-sponsored benefit. Employees contribute pre-tax money for eligible healthcare expenses through payroll deductions. These contributions are not subject to federal income, Social Security, or Medicare taxes. For 2025, individuals can contribute up to $3,300 to a healthcare FSA.

A defining characteristic of an FSA is the “use-it-or-lose-it” rule, requiring funds to be spent by the end of the plan year. Employers can offer flexibility options to mitigate this rule. One option is a grace period, allowing up to an additional two and a half months to use remaining funds. Another option is a limited rollover, permitting employees to carry over a specific amount of unused funds into the next plan year; for 2025, this maximum is $660. An employer can choose either a grace period or a rollover, but not both.

FSA funds are not portable; they are tied to the employer. If an employee leaves their job, any remaining funds may be forfeited. The FSA card functions like a debit card, allowing direct payment for qualified medical expenses at the point of sale.

The Health Savings Account (HSA) Card

An HSA card provides access to funds held in a Health Savings Account, a tax-advantaged savings account for healthcare expenses. To contribute to an HSA, an individual must be covered by a High-Deductible Health Plan (HDHP) and not be claimed as a dependent. For 2025, an HDHP must have a minimum annual deductible of $1,650 for self-only coverage or $3,300 for family coverage. Maximum out-of-pocket limits are $8,300 for self-only and $16,600 for family coverage.

HSAs offer a “triple tax advantage.” Contributions are tax-deductible or made pre-tax through payroll deductions. The money in the account grows tax-free, and withdrawals are tax-free when used for qualified medical expenses. Unlike FSAs, HSA funds are individually owned and fully portable, remaining with the individual even if they change jobs or health plans.

HSA funds roll over year after year and do not expire, providing a long-term savings vehicle for healthcare costs. Account holders can invest their HSA funds for tax-free growth. Individuals aged 55 and older can make an additional “catch-up” contribution of $1,000 annually, beyond the standard limits of $4,300 for self-only and $8,550 for family coverage in 2025. Contributions to an HSA cannot be made once an individual enrolls in Medicare.

Using Your Card for Qualified Medical Expenses

Both FSA and HSA cards pay for qualified medical expenses, as defined by IRS guidelines. These expenses include costs for the diagnosis, cure, treatment, or prevention of disease, or for affecting any function or part of the body. Eligible expenses include doctor visits, prescription medications, dental care, vision care, copayments, and deductibles. Certain over-the-counter medicines and medical supplies are also eligible without a prescription.

When using an FSA or HSA card, maintain detailed records, such as receipts and explanations of benefits, for substantiation. The IRS may require documentation to verify purchases were for qualified medical expenses. Many pharmacies and retailers use an Inventory Information Approval System (IIAS) to automatically identify eligible healthcare products at the point of sale. This system flags items as eligible or ineligible, streamlining the purchase process.

If an ineligible purchase is made with an FSA or HSA card, the funds may be considered taxable income and subject to penalties. For HSA funds, withdrawals for non-qualified expenses before age 65 are subject to income tax and a 20% penalty. After age 65, HSA withdrawals for non-medical expenses are taxed as ordinary income but are not penalized. Adhering to guidelines for qualified medical expenses maximizes the tax benefits of these accounts.