Do HSA Funds Expire?
It’s important for HR administrators to keep in mind the distinction between HSA and FSA funds in order to prepare for questions that employees might have in the coming weeks about their benefits.
Reminder: What is an HSA?
A health savings account (HSA) is a personal bank account with significant tax advantages that can be used by an individual to pay for medical expenses that aren’t covered by their insurance, typically on high-deductible health insurance plans (HDHP). HSAs are important because offering flexible, competitive benefit packages is one way to help recruit strong candidates and retain employees.
Do HSA Funds Carry Over From Year to Year?
HSA funds automatically carry over from year to year and the money can be used indefinitely, as long as the purchase is a qualified medical expense. There is a limit to the amount that a person or family can contribute to their HSA each year, as well as other limits and policies that the IRS updates each year.
What Are HSA Contribution Limits?
The new contribution limits are dependent upon whether an individual is enrolled in self-only or family coverage under an HDHP. The 2021 HSA contributions have increased to $3,600 for single coverage ($50 increase from 2020) and $7,200 for family coverage ($100 increase from 2020).
The 2021 HDHP Minimum Deductible does not apply to preventative care services, nor to services related to COVID-19 testing. It has not changed from 2020, so single coverage remains at $1,400 and family coverage remains at $2,800.
The 2021 HDHP Maximum Out-of-Pocket Limit is $7,000 for single coverage ($100 increase from 2020) and $14,000 for family coverage ($200 increase from 2020). If the HDHP is a non-grandfathered plan, a per-person limit of $8,550 also will apply due to ACA's cost-sharing provision for essential health benefits.
For those 55 and older, catch-up contributions remain at $1,000.
What About FSA Funds?
Unlike HSAs, flexible spending accounts (FSAs) do not automatically carry over from year to year and must be spent by the end of the calendar year or end of the plan year.
Sometimes, there may be a grace period depending on the plan. FSAs allow employees to set aside pre-taxed funds for healthcare or dependent care expenses and unlike HSAs, you do not have to be a member of a high deductible health plan to contribute to an FSA.
HSA and FSA Benefits: Simplified
For HSA account holders, a little bit of understanding goes a long way. Key benefits for health savings accounts include:
- Triple-tax savings on deposited funds
- Account funds are automatically rolled over each year
- Money can be used indefinitely, so long as the purchase is a qualified medical expense
- People can invest their HSA funds to maximize long-term benefits
On the other hand, individuals with FSAs benefit from the following:
- No eligibility requirements
- Reduced out-of-pocket costs for qualified expenses
- Significant tax savings
- Linked to a debit card for easy use
- Immediate access to funds
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