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flexible-spending-account-rules 

how-does-fsa-work

is-fsa-worth-it

what-is-dependent-care-fsa

what-healthcare-fsa

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FSA Eligible Items

Open Enrollment

A Dependent Care FSA allows caregivers to pay certain expenses with pre-tax dollars, saving them money at tax time. 

What Is a Dependent Care FSA & How it Can Help Caregivers

Lauren Hargrave is a writer from San Francisco who focuses on technology, finance and wellness. She follows comedians like most people follow bands and believes an outdoor sweat session can cure almost any bad mood. She’s also been writing her first novel for so long, her mom doesn’t ask about it anymore.

Lauren Hargrave

How does an FSA work and should you get one? Here’s everything you need to know to decide if an FSA is right for you.

How Does a Flexible Spending Account (FSA) Work?

Stephanie is a Freelance Content Specialist who specializes in personal finance. Stephanie's work can be seen in publications such as Investopedia, The balance, Credit Karma, and Forbes. When she's not writing, she's studying to become a CFP, practicing yoga, or going on hikes with her family. 

Stephanie Colestock

Craig Solomon is a Lifecycle Marketing Manager at Lively with more than 10 years of experience in the HSA industry. When he’s not helping Lively better understand their customers, you can find him listening to music or taking long walks in nature with his family. 

Craig Solomon

Wondering, "What is a Healthcare FSA?" Let's explore eligibility, how an HCFSA works, and how the money can be spent.

What is a Healthcare FSA (HCFSA) and Why is it So Important? 

have or was offered job-based insurance?

FSA (Flexible Spending Account)

Dependent Care FSA

Flexible Spending Account Rules

Benefits

There are several different places where you can purchase FSA-eligible expenses. Learn more about the different types of merchants here.

Where Can I Purchase FSA Eligible Items?

Avoid penalties. Know the Flexible Spending Account rules for Healthcare, Limited Purpose, and Dependent Care FSAs. 

Flexible Spending Account (FSA) Rules

Ben is a Freelance Content Specialist who specializes in personal finance and travel. Ben’s work can be seen in publications such as NerdWallet, Experian, Wirecutter, Credit Karma, and Bank Rate. When he’s not writing, you can find him trying new foods, hiking, and spending time with his kids.

Ben Luthi

“Is an FSA worth it?” Discover how you can save up to 30% on the medical, dental, vision, or care services they cover. 

Is an FSA Worth it? Benefits of a Flexible Spending Account

### What you need to know about merchants and substantiation

Your flexible spending account (FSA) is a powerful tool to help you save on healthcare costs. Each dollar you set aside in your FSA is pre-tax, allowing you to save up to 35%¹ when you use your FSA funds for eligible products and services. Because these FSA dollars are pre-tax, this means you don’t pay taxes on those funds. But there are restrictions—set by the [IRS](https://www.irs.gov/forms-pubs/about-publication-969)—on where and how you can spend the money in your FSA. The more you know about these limitations, the easier it is to use your FSA.

## The IRS Requires Substantiation on FSA Purchases

The first thing to know? The IRS requires verification that the items you buy with your FSA are eligible medical expenses

The good news? Some eligible items are automatically substantiated through your FSA provider. This happens at certain merchants who have their inventory control system set up to work with IRS regulations. This means that for you the customer, the qualified purchase is automatically approved. This system is known as an Inventory Information Approval System (IIAS).

For example, if you use your FSA to cover over-the-counter medication for pain relief at a pharmacy, you may not have to substantiate your purchase. See the chart below for more information.

### Different Types of Merchants
Use this handy chart to get familiar with different types of merchants and the substantiation requirements. Keep in mind that this chart covers services eligible for a Medical FSA. 

If you have a Limited Purpose FSA, only dental and vision services qualify. Use Lively’s ["What's Eligible"](https://livelyme.com/whats-eligible) page to see what eligible expenses you can make by FSA plan type.

![iias-merchant-types-edited](//images.ctfassets.net/6j8y907dne6i/4lB5kIkS946c4Zs9XCWOdZ/9bdfa04d78cd70f5a7126b498ccbad1b/iias-merchant-types-edited.svg)

* Not every franchise of these retailers is IIAS-certified. If not, you’ll need to pay out-of-pocket and request reimbursement.

## Understanding the Different Merchant Types

Want to look up a merchant to see their status? Use this [site](https://sig-is.org/card-holders/store-locator) to search for both IIAS-certified and 90% merchants in your area.

### IIAS-Certified Merchants

IIAS-certified merchants have modified their inventory management systems to automatically identify FSA-eligible products. You won't have to substantiate your purchases with your FSA debit card at these merchants.

### 90% Stores

These stores are stores in which 90% of their merchandise is FSA-eligible. When making a purchase with your FSA debit card at these types of stores, you will need to provide substantiation. Uploading a receipt or Explanation of Benefits (EOB) will help to verify that the purchase is FSA-eligible.

### Health Care Providers

Generally speaking, you can use your debit card at your health care provider's office to help pay for your visit. You’ll need to upload an Explanation of Benefits (EOB) and receipt so the expense can be substantiated.

### Non-certified and Local Merchants

When making qualified purchases at non-IIAS certified merchants, you will need to pay out-of-pocket. You can then submit your receipts for reimbursement from your FSA.

## What's an Explanation of Benefits (EOB)?

An Explanation of Benefits (EOB) is a statement from your health, dental, or vision insurance plan. It describes the services received and what costs the plan will cover and the amount you’ll pay. Your provider creates an EOB when they submit a claim for the services you received. An EOB is not a bill but is an ideal document for substantiating FSA claims. 

__NOTE:__ Make sure your provider’s bill matches the EOB before you pay. 

## Follow the Rule of 5 for Substantiation

When submitting documents and receipts for substantiation, be sure to follow the Rule of Five. If your documents cover these five elements, approving your payments will be simple.

1. Patient or dependent name
2. Provider or merchant name
3. Date of service
4. Type of service or product
5. Expense amount

---

Footnote:
¹) Your savings may vary. The 35% example includes 24% federal tax savings, 3.35% state tax savings, and 7.65% payroll tax savings.


Let’s face it, medical bills can get expensive fast, even if you don’t have chronic health issues. An FSA or [Flexible Spending Account](https://livelyme.com/what-is-an-fsa/) gives you the chance to set aside money before taxes. You can save these funds or use them to pay for qualified medical expenses. The [benefits of an FSA](https://livelyme.com/is-fsa-worth-it-flexible-spending-account) include tax savings, front-loaded accessibility, and convenience. 

But not everyone qualifies for an FSA, and some aspects of the plans may be less than appealing for some. If you have consistent health care costs, here are some ways an FSA may be able to help.

## What is a Flexible Spending Account (FSA)?

An FSA is a pre-tax health account, and it's sometimes referred to as a Medical FSA or [Healthcare FSA](https://livelyme.com/differences-between-hsa-vs-healthcare-fsa-infographic). You can use the funds in this account to pay for eligible medical expenses.

You can only get a Flexible Spending Account through an employer. The [Society for Human Resource Management](https://shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Documents/2018%20Employee%20Benefits%20Report.pdf) states 63% of companies offered FSAs in 2018. If your employer offers an FSA and you’re eligible to contribute, you can use it to save money on a pre-tax basis. 

Then you can use that money to pay for qualified medical expenses throughout the year. The tax savings will depend on how much you contribute and your [effective tax rate](https://www.thebalance.com/how-to-calculate-your-effective-tax-rate-4685263). Who wouldn’t want to keep even a little extra money in their pocket, rather than giving it to Uncle Sam?

![fsa-101](//images.ctfassets.net/6j8y907dne6i/245iacvnky7WkzoWlUna9q/1ee372d996bf26ecae21fb9fc04243ce/fsa-101.jpg)

Unlike similar health accounts, FSAs are front-loaded, which means you decide how much to contribute from each paycheck during the upcoming plan year. Once the plan year begins, you’ll receive the total of all your expected contributions from the get-go.

Here’s an example of how this works:

Let’s say you decide to set aside $100 per paycheck, and you’re paid two times a month. That’s a total of $2,400 over the course of a year. But you’ll receive that full amount at the beginning of your plan year.

That said, FSAs also have a “Use it or Lose it” policy, and it’s about as fun as it sounds. The rule says you must use all the money in your FSA within the same plan year that you make the contributions. Otherwise, you may have to give up the remaining amount. That said, employers may choose one of two options to provide some leniency with the rule.

First, they can give employees a grace period of up to two-and-a-half months. During this time, employees can incur new expenses and use the previous year’s funds to cover them. The second option allows participants to carry over up to $550 in 2020 FSA funds to the next plan year. 

Because of the “Use it or Lose it” rule, an FSA may not be the best fit for someone who doesn’t incur medical expenses often. You must choose how much you want to contribute to the account during open enrollment. As a result, it's essential to have a good idea of your upcoming expenses, so you don't overfund the account.

Finally, FSAs are not portable, so if you leave your employer, you can’t take your FSA funds with you. But, if you leave your job and used more FSA funds than you contributed for the year, you don’t have to repay the difference. 

## How to Add Money to Your Flexible Spending Account (FSA)

![how-to-add-money-fsa](//images.ctfassets.net/6j8y907dne6i/ghvKX5NnCHG3CKEukkbuA/abdf5693d3598f288cf421b0cdcabe30/how-to-add-money-fsa.jpg)

After you’ve determined your contribution amounts, you’ll put money into the account through paycheck deductions. The IRS sets contribution limits each year — in 2020, you can contribute up to $2,750. 

Unfortunately, there’s no higher limit if you’re on a family plan. But if you have a spouse or partner, both of you can save up to the annual limit of an individual FSA.

Remember, you’ll decide how much you want to contribute with each paycheck at the beginning of the plan year. So you’ll want to plan ahead. Also, if you carry over FSA funds from the previous plan year, that won’t count toward your contribution max.

You may be able to make changes during the year if certain events occur. Some qualifying life events include marriage, divorce, or having a baby. If any of those things happens, you’ll have 30 days to update your contribution amount.

Your employer may also choose to contribute to your FSA. They can do a dollar-for-dollar match, or $500 max. The limit is whichever option is greater. If you plan to set aside less than $500, the most your employer can contribute is $500. But if you contribute more than that, you can get a match of up to $2,750. 

## How to Use Your Flexible Spending Account (FSA)

![how-to-use-fsa](//images.ctfassets.net/6j8y907dne6i/2QPg18oIwVGQmqXy9acLq7/c6554398b6655532f2b4a8cea2301113/how-to-use-fsa.jpg)

You’ll typically have two options for using your FSA funds to pay for eligible expenses:

- __Debit card__: Most FSA providers give you a debit card tied to the account. When you need to pay for a qualified medical expense, use the card as you would any other debit card.
- __Reimbursement__: If you choose to pay for your health care costs out of pocket with debit or credit cards, you can request for reimbursement. Make sure you keep your receipt. You’ll need to upload it through your online account or mobile app to receive the money.

You can’t use your FSA funds for everything, even if it is health-related. For example, if your health insurance already covers the cost, you can’t double-dip. Cosmetic surgery is also a no-no. Most in-person doctor visits, prescriptions, dental, and vision care are qualified expenses. 

Check the [IRS website](https://www.irs.gov/pub/irs-pdf/p969.pdf) or [What’s Eligible](https://livelyme.com/whats-eligible/) for a full list.

## How Does an FSA Compare with Other Health Accounts?

Your employer may offer more than one option for tax-advantaged health savings. They can offer a [Health Savings Account (HSA)](https://livelyme.com/what-is-hsa) or a [Health Reimbursement Arrangement (HRA)](https://livelyme.com/what-is-an-hra/). 

If your employer offers more than one type of health savings plan, find out which ones you’re eligible for. Then read all the terms to compare your options to decide which is the best for you. Here’s a quick summary of each:

### Health Savings Account (HSA)

An [HSA](https://livelyme.com/hsas-vs-fsas) allows you to set aside pre-tax dollars for eligible health care costs. HSAs are only available for people enrolled in a [High Deductible Health Plans](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp/) (HDHPs). Contribution limits for 2020 are $3,550 for a self-only health plan and $7,100 for a family plan. You can add $1,000 more in catch-up contributions if you’re 55 or older. 

There’s no “Use it or Lose it” rule, and HSA plans are portable. If your employer does offer an HSA, it may choose to make contributions on top of yours. Finally, unlike an FSA or HRA, you can invest your HSA funds.

### Health Reimbursement Arrangement (HRA)

![health-reimbursement-arrangement](//images.ctfassets.net/6j8y907dne6i/4Pk5gER976pNS8GgDtOF9n/5592d92a667a78d163da4633c2422038/health-reimbursement-arrangement.jpg)

You can only [get an HRA](https://livelyme.com/fsa-vs-hra) through an employer, and the company owns the account. Some employers may even choose to offer an HRA instead of health insurance plans. The primary difference between the two is that only an employer can make contributions to an HRA. 

Contribution limits will vary based on the type of HRA you have. Any money your employer contributes is not considered income on your tax return. Your employer will get to decide which expenses are eligible. They also determine whether you can carry over unused funds at the end of the year.

__NOTE:__ A healthcare FSA is different from a Dependent Care FSA. A [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa) allows you to pay for qualified care expenses that will enable you to work. You can also get tax benefits from a Dependent Care FSA, but many of the rules differ from a health FSA.

## The Last and Most Important FSA Tip

FSAs are best to use for expected qualified health expenses. Do your best to plan each year and review your expected expenses to maximize the tax savings. The last thing you want to do is lose money at the end of the year. But with the right strategy, FSAs are a great tool to save money on annual health savings.

__Editor’s note:__ This post was originally published on February 27, 2020 and updated on October 1, 2020.

---

If you’re the primary caregiver, it’s not easy to justify paying someone to replace you while you’re at work. Sometimes, it can even feel like so much of your paycheck is going toward dependent care expenses that you’re really paying for the privilege to work. 

That’s where a Dependent Care Flexible Spending Account (DCFSA) comes in. These accounts help working parents and caregivers pay for the care that allows them to go to work. Depending on your effective tax rate, a DCFSA could save you thousands of dollars every year. 

Plus, eligible parents may be able to take advantage of a Dependent Care FSA and the child and dependent care tax credit. Here’s what you need to know.

## What Is a Dependent Care FSA, and How Does It Work?

The Dependent Care Flexible Spending Account allows you to set aside pre-tax money from each paycheck, which you can use to pay for dependent care services. This can include child and adult day care, summer day camps, preschool and more. With this arrangement, the money you spend on those expenses are effectively tax free.

Unlike Healthcare FSAs, Dependent CARE FSAs are not front-loaded. This means that you fund the account throughout the year with each deduction from your paycheck, and you can use the money once it’s deposited into the account. With Healthcare FSAs, on the other hand, you get the full amount that you’re scheduled to contribute throughout the year at the beginning of the plan year. 

The IRS limits how much you can contribute to a Dependent Care FSA each year. Also, there are some restrictions on how and when you can use the funds. 

Finally, it’s important to note that you can only gain access to a Dependent Care FSA through your employer. According to the [Bureau of Labor Statistics](https://www.bls.gov/ncs/ebs/factsheet/flexible-benefits-in-the-workplace.htm), 42% of American workers had access to one in 2019. In some cases, employers can even choose to make contributions on your behalf. 

## Am I Eligible for a Dependent Care FSA?

![dependent-care-fsa (1)](//images.ctfassets.net/6j8y907dne6i/3mbc4UM8CkMEd5Zh76XdLp/eb57200b2c46b827bd58615689f0cc19/dependent-care-fsa__1_.jpg)

A Dependent Care FSA is an employee-provided benefit, so you can only open one if your employer offers it. If that’s the case, here are some eligibility requirements:

- You’re the primary caregiver to a child under 13. Or an elderly parent or a family member who is incapable of self care.
- The person or people for whom you provide care live with you full-time.
- If you’re divorced with a child under the age of 13, you’re the parent with primary custody. 
- If you’re married, both spouses must either work or be looking for work that earns money.

If you don’t follow the eligibility rules around Dependent Care FSAs, you will lose the money you contribute. Additionally, you’ll owe income taxes on those contributions.

## Contributing to a Dependent Care FSA

Want to contribute to a Dependent Care FSA? You’ll need to set it up during your employer’s open enrollment process.

At that time, you’ll choose the amount you want to save during the year. Then your employer will take the appropriate amount out of each paycheck and deposit it into your account. Your employer may choose to contribute to your account, but they are not required to do so.

In 2020, your annual contribution is limited to $5,000 if you’re married and filing a joint tax return or $2,500 for all others. Also, note that if you’re a married couple and each of you has access to a Dependent Care FSA, the maximum between the two of you is still $5,000, not $10,000. Also, note that you can’t contribute more than your earned income for the plan year.

While you’ll determine how much you want to save during the open enrollment period, you can update the amount if you experience a Qualifying Life Event, which can include:

- You've had a change in marital status.
- You've had a change in the number of dependents.
- The cost of your dependent care services has changed significantly.
- You or your spouse has had a change in employment status.
- Something happened to change one of your dependent’s eligibility. For example, an older child or parent becomes disabled, or your dependent is no longer eligible.
- You or your eligible dependent has had a change in residence.

## Using a Dependent Care FSA

![using-dependent-care-fsa](//images.ctfassets.net/6j8y907dne6i/5Sy5u3z3SAeEylR1D4HXUT/7a9ba4e3f571fa16ce0d6bdea1dc473a/using-dependent-care-fsa.jpg)

To use your savings for an eligible expense, you may have several options available to you. For example, you can use a debit card connected to your account or pay out of pocket and submit claims to receive reimbursement. 

Depending on the provider, you may be able to submit claims online or through a mobile app. Some FSA administrators may even offer to pay your caregiver directly. 

If you opt to pay the expenses and get reimbursed, it will come as either a check mailed to your address or a direct deposit into your account.

### Eligible Dependent Care FSA Expenses

If you’re considering using a Dependent Care FSA, it’s important to make sure that your dependent care-related expenses are eligible. You can find the full list on the [IRS website](https://www.irs.gov/pub/irs-pdf/p503.pdf), but here are some examples:

- Physical care
- In-home care like an au pair, nanny, or babysitter
- Licensed nursery schools
- Qualified childcare centers
- Adult daycare facilities
- After-school programs
- Summer camps for children under the age of 13 (but not overnight)
- Preschool tuition
- Household services that are at least partly for the well-being and protection of your qualifying dependent
- Dependent care centers
- Transportation provided by caregivers
- Application fees, deposits, etc. required for obtaining care (but only if care subsequently provided)
- Meals and lodging provided for housekeepers
- Taxes paid on wages
- Work-related expenses paid to certain relatives, as long as they’re not your dependents

![how-to-spend-dependent-care-fsa](//images.ctfassets.net/6j8y907dne6i/18S7fvvAGMbPLSl4baeqP4/1df82808d71e62d63c6c953b8cba2c20/how-to-spend-dependent-care-fsa.jpg)

### Ineligible Expenses for a Dependent Care FSA 

In some cases, something you may think is an eligible expense isn’t included in the list provided by the IRS. The following are some of the expenses that you CANNOT use your FSA to pay for:

- Babysitting that’s provided by a sibling or child under the age of 19. Or another individual who can be claimed as a dependent.
- Babysitting for extracurricular activities like date night.
- Education like private school or tutoring.
- Overnight camps.
- Enrichment activities like sports or music lessons.
- Custodial nursing care or long-term care for parents not living with you.

Remember that it’s possible to take advantage of a Dependent Care FSA and the child and dependent care tax credit. The tax credit can reduce your tax liability by up to $3,000 for one qualifying dependent or $6,000 for two or more. However, it’s a non-refundable tax credit, so you may not benefit much if you’re expecting a tax refund. 

Also, you can’t double-dip. In other words, if you’ve covered expenses with your Dependent Care FSA, you can’t claim those same expenses to get the tax credit. 

## Do I Get to Keep My FSA Contributions?

You must use your contributions within the plan year or risk forfeiting what remains. Many employers will give you a grace period after the year ends to claim expenses from the previous plan year. But, there is no rollover option like there is with the [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa) or [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa).

Also, note that you’ll lose the money you contribute to your Dependent Care FSA if you leave your employer. As a result, plan to use what you’ve accumulated before your last day of work.

Dependent Care FSAs can lower your tax burden and ease the financial obligation that comes with being a primary caretaker. It could even help you stay in the workforce.

And there’s a bonus! You can maintain a [Health Savings Account](https://livelyme.com/what-is-hsa), which offers the similar tax benefits on health care expenses, along with this type of FSA. If you have further questions, ask your HR department about your company’s particular benefits plan.


__Editor’s note:__ This post was originally published on February 12, 2020 and updated on October 6, 2020.

---

If you receive healthcare coverage through your employer, you might have heard of an FSA. Or a Flexible Spending Account. These accounts allow you to earmark funds for eligible out-of-pocket medical expenses. As a bonus, they can also help you reduce your taxes.

Let’s take a look at what a Healthcare Flexible Spending Account (HCFSA) does. And why you may want to consider using one.

## What is a Healthcare FSA (HCFSA)?

When it comes to paying for healthcare, there’s one thing that most of us can agree on: it doesn’t come cheap. Whether we’re talking about regular preventative care, the occasional X-ray, or a severe condition, the [out-of-pocket expenses](https://livelyme.com/what-causes-healthcare-costs-to-rise) can feel like a burden for many Americans. 

Luckily, a little bit of relief can be found in the form of a Healthcare Flexible Spending Account, or HCFSA. 

Healthcare FSAs are a type of spending account offered by employers. Pre-tax dollars are put aside from your paycheck into your FSA. Your employer may also choose to contribute. Later, you can use this money to pay for qualified expenses, such as medical care, health-related products, and other services.

Because your funds are contributed from your payroll to the FSA, they are pre-tax. This means that you can wind up saving up to 30% on medical products and services. Compared to if you'd paid those bills with after-tax dollars, depending on your tax bracket.

Some employers offer to contribute to their employees’ FSAs, though they aren’t required to do so. But if your workplace benefits package includes FSA contributions, you’re in luck.

First, that "free" money means less that you have to put toward your medical expenses each year. Second, your employer's contributions won’t count toward your annual FSA contribution limits.

![health-care-fsa](//images.ctfassets.net/6j8y907dne6i/2KCb5Ok50Is2ELVpQK581N/6fe573ff2a0f5693a686d0e917ac0e5a/health-care-fsa.jpg)

## Basic Healthcare FSA Rules

There are a few things to remember when it comes to establishing — and then spending from — your Healthcare FSA.

- __Annual contribution limits__: For 2021, you can contribute up to $2,750 into your Healthcare FSA. If you're married and both you and your spouse have an FSA, you can contribute $2,750 to each account. If only one of you has an FSA, you cannot double your contributions (e.g., put $5,500 into one account).
- __Eligibility__: You are eligible to contribute to an FSA if your employer offers one. The Healthcare FSA doesn't need to be paired with a specific health insurance plan, either. You have the flexibility to choose the best insurance plan for your family. While still benefiting from tax-advantaged healthcare savings.
- __When the funds expire__: You must use your FSA money within the plan year or risk forfeiting what's remaining. If there's a balance at the end of the year, your employer may offer options. You may be able to roll over up to $550 in contributions from 2020 to 2021. Or your employer may give you an extra 2.5 months grace period, during which you can use the leftover money. But you cannot do both. If you accept an employer's offer to rollover funds, that balance won't affect your contribution limits for the following year.
- __How to fund your FSA__: During open enrollment, you will choose how much you’d like to contribute to your FSA. Then, your employer makes payroll deductions and deposits the money into your FSA. Your employer may also choose to make extra contributions to your FSA.
- __How to use your FSA__: You will pay for eligible healthcare expenses as usual, out of your pocket. Then, you will submit the proper documentation to your plan administrator for reimbursement. This reimbursement can come from a mailed paper check or direct deposit into your bank account.

![fsa-health-care](//images.ctfassets.net/6j8y907dne6i/4PaHi2D8ygyYI5f49ESawb/cfac041aa0f3d34f1f8fe4bed06e61f8/fsa-health-care.jpg)

## What Healthcare FSAs Can Cover

You can use a Healthcare FSA to cover any number of health and [wellness](https://livelyme.com/fsa-hsa-at-home-wellness) expenses. Including those involved with your medical, dental, or vision care. Here are some of the [eligible expenses](https://livelyme.com/flexible-spending-account-fsa-eligible-items) for which you can use your FSA funds:

- Copays
- Deductibles
- Over-the-counter and prescription drugs. Such as [pain relievers](https://fsastore.com/SearchProducts.aspx?q=pain%20relievers&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [allergy treatments](https://livelyme.com/fsa-hsa-help-seasonal-allergies), [insulin](https://fsastore.com/SearchProducts.aspx?q=insulin&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), birth control pills, [sunscreen](https://fsastore.com/SearchProducts.aspx?q=sunscreen&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [ointments](https://fsastore.com/SearchProducts.aspx?q=ointments&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and more.
- Medical supplies and equipment. Such as crutches, wheelchairs, bandages, contact lenses, dentures, breast pumps, and more.
- Diagnostic devices, such as blood sugar kits
- Therapeutic services, like chiropractic adjustments and acupuncture

Your FSA funds don't have to be used exclusively by you, either. That includes your spouse and dependents—specifically, children who will be younger than 27 at the end of the calendar year. And parents who are in your full-time care.

## Setting Your FSA Contributions

FSA contribution amounts are set-up during open enrollment each year. After that, you can only change the amount you contribute to your FSA after a Qualifying Life Event (QLE):

- Gain a new family member, such as a spouse or dependent child (birth, adoption, or placement for adoption).
- Take on an eligible tax-exempt dependent. This could happen if a parent moves into your home, or you’re appointed the guardian of a minor.
- Have lost coverage under your spouse’s FSA due to death, job loss, or divorce.
- Lose a dependent, either due to death or the dependent "aging out” of eligibility.
- Are affected by a change in your spouse’s employment status

None of these apply to you? Then you'll need to wait until the next open enrollment period to make changes to your FSA.

![setting-fsa-contribution-1](//images.ctfassets.net/6j8y907dne6i/2FMxrEsxhhB8HEQBf0raOL/68b135f6a34380bfce5f7dd7e379c626/setting-fsa-contribution__1_.jpg)

## What If You Also Have an HSA?	

Like FSAs, Health Savings Accounts (HSAs) offer tax- advantages for healthcare expenses. To open an HSA, though, you must first be enrolled in a [High-Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp/) (HDHP).

If you have an HSA, you can continue to use the money from that account to pay for eligible medical expenses, just as you would with your FSA funds. However, you can not contribute to an HSA while you're also contributing to a Healthcare FSA. 

### Contributing to an HSA and an FSA

You can own both an HSA and a Healthcare FSA, and spend from each account simultaneously. The caveat, though, is that you can only contribute to one of these accounts at a time. So if you want to contribute to an HSA while also building FSA funds, you’ll need to do so through a Limited Purpose FSA. Rather than a Healthcare FSA. 

A [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa) is similar to a Healthcare FSA in that it acts as a tax-advantaged spending account for health-related expenses. One big difference between the two is that a Limited Purpose FSA can __only__ be used to cover eligible dental and vision expenses. Another key difference is that you can contribute to a Limited Purpose FSA and an HSA simultaneously.

![contributing-fsa (1)](//images.ctfassets.net/6j8y907dne6i/4aaJKKxr6d4b0NXE6Voxh4/afcae39612e8272d3c7f31fca8b1fb5b/contributing-fsa__1_.jpg)

### Spending from an HSA and an FSA

When you have both an HSA and an FSA, you'll want to strategize your healthcare-related spending. That's because your HSA money rolls over each year and can be saved for as long as you need it. Because of this, many people use their HSA as an extra retirement account.

Since you lose any remaining FSA money at the end of each year, it makes sense to spend that money first. In doing so, you can preserve your HSA forever (or at least until you need it). Plus, the savings will continue to earn interest over time.

You'll still be able to cover eligible medical expenses with tax-advantaged funds. By using your FSA funds before your HSA funds, though, you'll optimize both.

## The Bottom Line

FSAs are an incredibly beneficial product that helps you allocate funds for upcoming healthcare expenses. By allowing you to utilize pre-tax funds for these eligible expenses, FSAs also save you money when compared to paying with after-tax dollars. As time-sensitive funds, HCFSAs can be used first to cover healthcare costs. This saves HSA savings (which don’t expire) for the future.

Healthcare FSAs can also help relieve the burden that many feel when it comes to paying for medical- and wellness-related expenses. Once established — especially if your employer also contributes to the account— they provide secure and dedicated funds that you can use throughout the year. Knowing that this money is there can help ease stress if a situation does arise.

If you are offered a healthcare FSA through your job, consider the many benefits this account can provide. Talk to your company's HR department to learn more about opening up a healthcare FSA. 


What is a Healthcare FSA (HCFSA) and Why is it So Important?

__Editor’s note:__ An earlier, and shorter version of this [blog post](https://livelyme.com/fsa-rules) was previously published. We published this update because the rules aren’t complicated, but knowing them will prevent you from incurring penalties or losing your Flexible Spending Account contribution. 

---

Flexible Spending Accounts (FSAs) are an excellent way to help you save for anticipated medical, dental, and vision expenses. As well as dependent care costs.

Like all tax-advantaged accounts, the IRS has rules and regulations on how FSAs function. Especially about who can contribute and how much. And what those contributions can be used for. As you’ll see, the Flexible Spending Account rules aren’t complicated. But you will need to follow them to avoid incurring a penalty or losing any of your contributions.

## What is a Flexible Spending Account (FSA)?

Let’s start with the basics. A [Flexible Spending Account](https://livelyme.com/what-is-an-fsa) (FSA) is a spending account. It allows you to contribute tax-free money to pay for eligible medical, dental, vision, or dependent care expenses. Depending on the type of account you have.

The three most common types of FSAs are the [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa) for medical expenses. A [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa) is for dental and vision expenses. And the [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa) is for expenses associated with child and adult day care.

## Where Do I Sign up for an FSA?

FSAs are employer-based plans. Typically you set up an FSA when you begin a job or during the yearly open enrollment period. The only other time would be after a qualifying event like a marriage, birth, or death of a dependent, among others. Unfortunately, those who are self-employed aren’t eligible for an FSA.

### How Do I Contribute to an FSA?

![how-to-contribute-fsa](//images.ctfassets.net/6j8y907dne6i/3o3FNi4tkdIAls8qsIlAqK/4daba479c88e41b2b97d905a51b582a6/how-to-contribute-fsa.jpg)

When you elect to participate in your employer’s FSA, you can choose how much you want to contribute for the year up to the applicable IRS annual contribution limit. Then, your employer will deduct the appropriate amount from each paycheck and deposit that money in your FSA. Your employer can also choose to contribute to your FSA, but they aren't required to.

*__Each type of FSA has its own contribution limit. For 2021 the limits are as follows:__*

__Healthcare FSAs:__ $2,750. Healthcare FSA contributions work on an individual basis. So each spouse in the household can open their own FSA if it's offered by their employer. And each spouse can contribute up to the 2020 contribution limit. That’s a maximum of $5,500 per married couple.

__Limited Purpose FSAs:__ $2,750. Limited Purpose FSAs also work on an individual basis. As such, both spouses must open their own accounts through their respective employers. A married couple can contribute a maximum of $5,500.

__Dependent Care FSAs:__ $5,000. Dependent Care FSAs function differently. Contribution limits are determined by household and tax filing status. If you are a married couple who files jointly, you may open one Dependent Care FSA and contribute up to $5,000 into that account. 

If you file separately from your spouse, you may open two separate accounts. Provided you’re both given the option through your employers. And contribute up to $2,500 in each account. If you and the other parent of your child(ren) are divorced or separated, only the parent with primary custody of the children may open and contribute to a Dependent Care FSA.

The IRS typically ties contribution limits to inflation and as such, they are subject to change annually.

## What Can I Use My FSA For?

![what-can-use-my-fsa-for](//images.ctfassets.net/6j8y907dne6i/5WYsobWEzzZqmrqStUWFct/0075e5c302c0945232d23e18ee2538b7/what-can-use-my-fsa-for.jpg)

A [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa) is set up to help you use pre-tax dollars to pay for medical expenses. For you, your spouse, and your dependents. 

Qualified medical expenses include but are not limited to:

- Copays
- Coinsurance
- Deductibles
- Prescriptions and over the counter drugs
- Transportation costs (to and from medical appointments)
- Emergency care
- Medical supplies like [crutches](https://fsastore.com/SearchProducts.aspx?q=crutches&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [bandages](https://fsastore.com/SearchProducts.aspx?q=bandages&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [first aid kits](https://fsastore.com/SearchProducts.aspx?q=first+aide+kit&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and more
- [Sunscreen](https://fsastore.com/SearchProducts.aspx?q=sunscreen&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- And more from the [FSA Store](https://fsastore.com/FSA-Eligibility-List.aspx?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)

A [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa) allows you to use your contributions to pay for dental and vision costs. For you, your spouse, and your dependents. 

These expenses include but are not limited to:

- Vision exams
- Dental exams
- Teeth cleaning
- Treatment for cavities, crowns, root canals, and more
- [Eyeglasses](https://contacts.fsastore.com/glasses-s/574.htm&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- [Contact lenses](https://contacts.fsastore.com/?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- And more from [FSA Store Optical](https://contacts.fsastore.com/?&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)

A [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa) helps you pay for any type of dependent care that allows you to work. Or look for paying work. No volunteering allowed. 

Here are a few examples:

- Daycare and after school care for children under age 13
- In-home assistance, medical care, or nursing home care for a disabled or ill spouse. And in-home care, nursing home, or childcare for disabled or severely ill children of any age
- In-home caretaking, medical care, or senior home care for a disabled or ill parent
- Summer day camps and programs (no overnight camps)
- Adoption assistance

## Can I Contribute to Another Tax-Advantaged Account in Addition to This One?

![contribute-tax-advantaged-account](//images.ctfassets.net/6j8y907dne6i/1ASxlCzgiMGu1fRhyg7IBC/44dd9e9607814a029ade5d43b78a4e0c/contribute-tax-advantaged-account.jpg)

No. And yes. If you have an active [Health Savings Account](https://livelyme.com/what-is-hsa) (HSA), you will have to stop contributing to that account before taking advantage of your employer’s Healthcare FSA.

There's good news though. You can still use previous HSA contributions while you’re actively contributing to a limited purpose or dependent care FSA. You just can't add any contributions while using a Healthcare FSA. Or, you can save your already contributed HSA funds for the future and use your Healthcare FSA contributions for more immediate expenses.

You can, however, contribute to an active HSA and have an active Limited Purpose FSA or Dependent Care FSA. Because these two account types are not healthcare-related there isn’t a conflict. Remember, you __can’t__ contribute to an HSA and have an active Healthcare FSA. But you __can__ have an HSA and Limited Purpose FSA or Dependent Care FSA.

## You Must Use It, or You’ll Lose It

One thing to keep in mind with FSAs is that they are a “use it or lose it” option. That means funds can only be used __during the calendar year they are contributed__. If you have money left in your account at the end of your plan year, you lose what remains.

Employers have the option to offer employees one of two solutions for left-over contributions. But are not required to do so. They can either offer an [FSA rollover](https://livelyme.com/flexible-spending-account-fsa-rollover) option where you can roll up to $500 from your 2019 account into your 2020 account. This increases to $550 from 2020 into 2021. Or they can offer a 2.5 month __grace period__ that allows you to spend your FSA money for up to 2.5 months after the plan year ends. That’s usually March 15.

If you decide to participate in your employer’s plan, you’ll want to take some time to map out your future expenses. This way, you'll be sure to contribute the right amount.

Does your employer offer an FSA? And is the option to use pre-tax money to pay for medical, dental, vision, or dependent care expenses attractive to you? Ask about the details of your employer’s plan. The pretax nature of these accounts can lead to significant savings. And it’s always nice to know you have money socked away for when you need it.


__Editor’s note:__ *An earlier, and shorter version of this [blog post](https://livelyme.com/what-are-the-benefits-of-an-fsa) was previously published. We published this update because knowing whether an FSA is worth it for you is the vital first step to taking advantage of their tax and cost savings.*

---

A [Flexible Spending Account](https://livelyme.com/what-is-an-fsa) (FSA) has benefits you want to pay attention to. These accounts use pre-tax money, from your paycheck, that you can use to pay for medical, dental, or vision care costs. Or child or adult day care services that allow you to work or look for work. The types of expenses that you can pay for with your FSA contributions will depend on the type of FSA plan you have.  

Unlike a [Health Savings Account](https://livelyme.com/what-is-an-fsa) (HSA), you don't need to buy a specific health insurance plan to open an FSA. In fact, you don’t have to maintain a health plan at all. But, your FSA must be offered through an employer-offered benefits program; you must not be eligible for Medicare, and if you have a Healthcare FSA you cannot contribute to an [HSA](https://livelyme.com/hsa-guide) at the same time.

## Tax Benefits of a Flexible Spending Account

Regardless of the FSA account type, their pre-tax nature can result in many financial benefits. First, depositing pre-tax money from your paycheck lowers your gross income. By doing this, you can even lower your tax rate. Of course, this depends on where your annual income falls within your tax bracket.

Since your FSA contributions are pre-tax, the medical, dental, vision, or dependent care expenses also cost you less. That is when compared to paying for these expenses with after-tax income. This means you can *__save up to 30%__* on those expenses, depending on your tax bracket.

## What Can I Buy with My FSA?

![what-to-buy-fsa](//images.ctfassets.net/6j8y907dne6i/3zkSeX2KGdUfvxQq9iRrwE/89c856617947bcf09aa8ca77a98c9afd/what-to-buy-fsa.jpg)

The types of eligible expenses your FSA contributions can pay for depending on the FSA account type. The three most common FSAs are [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa), [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa), and [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa). Here are examples of out-of-pocket costs that you can pay for with your contributions. Broken out by account type.

### Healthcare FSA

You can use your FSA contributions to pay for expenses for yourself, your spouse, and your dependents. This list is just an example of the qualified medical expenses for which you can use your [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa) contributions. For a complete list, read “[Common Flexible Spending Account (FSA) Eligible Items](https://livelyme.com/flexible-spending-account-fsa-eligible-items).” 

- Copays
- Coinsurance
- Deductibles
- Prescriptions 
- Emergency care
- Medical supplies like [bandages](https://fsastore.com/SearchProducts.aspx?q=bandages&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [antiseptic wash](https://fsastore.com/SearchProducts.aspx?q=antiseptic%20wash&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [joint braces](https://fsastore.com/SearchProducts.aspx?q=joint%20braces&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [first aid kits](https://fsastore.com/SearchProducts.aspx?q=first%20aid%20kits&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and more
- Medical aids like [crutches](https://fsastore.com/SearchProducts.aspx?q=crutches&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [hearing aids](https://fsastore.com/SearchProducts.aspx?q=hearing%20aid&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and more
- Over-the-counter drugs. Due to the CARES Act, these no longer need a prescription.
- [Insulin](https://fsastore.com/SearchProducts.aspx?q=insulin&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner) refills. No prescription needed.
- Acupuncture
- [Acupressure mats](https://fsastore.com/SearchProducts.aspx?q=accupressure&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner) and other tools
- [Sunscreen](https://fsastore.com/SearchProducts.aspx?q=Sunscreen&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- [Menstrual care products](https://fsastore.com/SearchProducts.aspx?q=menstrual%20care&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner). The CARES Act added these to the list of “qualified medical expenses.”
- Anything on the [FSA Store](https://fsastore.com/?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)

### Limited Purpose FSA (for vision and dental care)

Limited Purpose FSAs can be active at the same time as an HSA. Taking advantage of both could give you a way to pay for vision and dental expenses using your FSA while saving your HSA money for the future.

- Copays
- Coinsurance
- Deductibles
- Teeth cleaning
- Vision tests
- Dental procedures like treatments for cavities, crowns, teeth grinding, and more 
- [Eyeglasses](https://contacts.fsastore.com/glasses-s/574.htm&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)
- [Contact lenses](https://fsastore.com/SearchProducts.aspx?q=Contact%20lenses&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner)

You can use your FSA contributions to pay for expenses for yourself, your spouse, and your dependents. Like the list provided for Healthcare FSAs, this list is not exhaustive. For a complete list of [Limited Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa), IRS-approved expenses read [“Common Flexible Spending Account (FSA) Eligible Items.”](https://livelyme.com/flexible-spending-account-fsa-eligible-items) 

### Dependent Care FSA

![dependent-care-fsa](//images.ctfassets.net/6j8y907dne6i/2nGiF3Ajakp51BMixuj3yT/819b73042d07640ccf0b1439d7466f51/dependent-care-fsa.jpg)

For you to be eligible to contribute to a [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa), you must be the primary caretaker of minor children under the age of 13. And/or an adult-dependent who can't take care of themselves. In both cases, the eligible dependents must live in your home most of the time.

These expenses must be incurred while you work or look for work. That means you can't use contributions for date-night babysitters. Or care providers that allow you to volunteer. An added benefit is that you can maintain a Dependent Care FSA while contributing to an HSA.

Like the previously provided lists, this one is not completely representative of all of the expenses for which you can use your [Dependent Care FSA](https://livelyme.com/what-is-a-dependent-care-fsa) contributions. For a more comprehensive list, read “[Common Flexible Spending Account (FSA) Eligible Items](https://livelyme.com/flexible-spending-account-fsa-eligible-items).” 

- Daycare for minor children under the age of 13
- After-school programs for minor children under the age of 13
- Summer programs for minor children under the age of 13
- Nanny for minor children under the age of 13
- Preschool fees
- Adult daycare programs for adult dependents who can’t take care of themselves
- In-home care services for adult dependents who can't take care of themselves 
- Transportation costs for caretakers

## Is Opening an FSA Worth It?

![is-opening-fsa-worth-it](//images.ctfassets.net/6j8y907dne6i/5NRyIwVMWFbUiIWCyo6hHT/e36161f0226bec6737ec973576f6f257/is-opening-fsa-worth-it.jpg)

Did you read through the list of FSA-approved expenses and see something familiar? If you found items or services you know you'll need in the upcoming year, an FSA could be worth opening. 

Remember, these expenses could be incurred by you, your spouse, or your dependents. By opening an FSA, not only will you save money by lowering your taxable income. But you will ensure that the money is socked away for when you need it during the plan year.

Be cautious because you could lose money left in your account on the last day of your plan. To avoid this, make sure you choose your funding election carefully. 

There are only two cases where left-over funds could still be used after the last plan day. And only if your employer allows it. 

First, employers can allow you to roll over up to $550 of your contribution in 2020 to 2021. Or, they could permit a 2.5 month grace period for you to use the remaining contribution. Either way, be sure to select your FSA contribution carefully so you don't lose any contributions at year-end.

Also, be sure your monthly household budget can afford the FSA contribution you elect. This is important because you won’t be able to change these elections until the following open enrollment period. Or unless you experience a [qualifying life event](https://www.healthcare.gov/glossary/qualifying-life-event/) like marriage, the birth of a child, or the death of a dependent.

As you can see there are many benefits to opening an FSA, regardless of account type. Only you can decide whether it’s worth it to you to open an FSA. If you have any questions about your employer’s specific plan(s), don’t hesitate to reach out to your HR Department.

To lower your healthcare costs you enroll in a high-deductible health plan (HDHP). That's because HDHPs have lower insurance premiums (but higher deductibles).

Since HDHPs have higher deductibles, you can help keep your healthcare costs low by using preventive care and a medical savings account (known as an HSA).

1. Most HDHPs cover preventive care (like a physical exam) with zero out-of-pocket. So keeping up with preventive care is a smart way to avoid costly illnesses (and to feel good!).

2. You can continue to lower your healthcare costs by using a health savings account. In fact, a high-deductible health plan works best in combination with a health savings account.

Read this guide if you want to learn how to use a tax-advantaged health savings account (HSA) to pay for qualified medical expenses, save money, and lower your taxes.

<h2>Who should read this</h2>

This material applies to individuals & families that want to lower their healthcare costs and be financially effective with their high-deductible health plan (HDHP).

It’s important that you learn about HSAs if you have (or plan to enroll in) an HDHP. It will help you save big.

If you’re in the process of enrolling in an HDHP then choose a plan that is compatible with an HSA. The IRS defines an HDHP as having:

- $1,350 minimum annual deductible for self-only health care coverage and $2,700 for family coverage (both unchanged from 2018)

- $6,750 maximum for self-only health care coverage (a $100 increase from 2018), and $13,500 for family coverage (a $200 increase from 2018)

Jump to:

- [Health Plan Terms](#health-plan-terms)
- [Definition of an HSA](#definition)
- [HSA vs FSA](#hsa-vs-fsa)
- [HSA vs PPO](#hsa-vs-ppo)
- [Benefits of an HSA account](#benefits)
- [How to qualify for an HSA account](#how-to-qualify)
- [How to maximize your savings](#how-to-maximize)
- [How to use your HSA funds](#how-to-use)
- [How to open an account account](#how-to-open)
- [Frequently asked questions](#faq)

<h2 id="health-plan-terms">Some Health Plan Terms</h2>

Before we move forward, let’s define a few terms you’ll come across when shopping for health plans. If you know these feel free to skip to the next section.

- Deductible: This is what you pay upfront for your medical care before your insurer’s coverage kicks in. Once you meet your deductible your insurer covers a large part of the bill. It resets every year.

- Premium: This is what you pay every month to the insurance company to have health insurance whether you use it or not.

- Copay: Predetermined rate you pay to access healthcare services. With your plan, you could have to pay $20 every time you go to the doctor’s office or a $10 copay for your monthly medication.

- Coinsurance: Once you meet your deductible, your health insurer takes up the bulk of your medical bills. But not all of it. Your co-insurance is the percentage of a medical bill you pay for after you meet your deductible. For instance, with a 25% coinsurance, you would pay 25% of each medical bill, and your health insurance provider will cover the remaining 75%.

- Out-of-pocket limit: But you can’t just keep paying for your healthcare, otherwise in a bad health year even with the best plan you would become bankrupt. Your out of pocket limit is the absolute maximum you would need to pay for your healthcare in a year before your health provider covers 100% of the bill.

<h2 id="definition">What is an HSA?</h2>
Health care costs for Americans have been skyrocketing. And an HSA can help you (and your family) plan for and beat the rising costs.

So what exactly is an HSA?

A Health Savings Account (HSA) is an easy and smart way to pay for qualified medical expenses for you and your dependents. With its tax-advantages, easy access to savings, and future growth potential it’s an effective savings vehicle that provides benefits today and in the future.

You can [open an HSA easily and in only a few minutes with Lively](https://livelyme.com/). Then you can contribute to your account (which is FDIC insured) with pre-tax dollars. As a result, you’ll lower your income tax (which is a significant tax benefit).

Using your HSA funds is also easy. We cover it below in the ‘[How to use your HSA funds](https://paper.dropbox.com/doc/2019-Guide-to-HSA--AR5sdUz22mf7__AoRI1xvIORAg-EtPIRt4gBzgxqKMnnuDyY#:uid=463786104738843322001399&h2=How-to-use-your-HSA-funds)’ section.

<h2 id="hsa-vs-fsa">HSA vs FSA</h2>

Health savings account versus a flexible spending account

FSA stands for flexible spending account. It’s an account your employer makes available to you so you can pay for medical expenses with pre-tax dollars.

With both an HSA and an FSA, you can pay for out-of-pocket medical expenses—like copays, medical bills, and vision expenses—while __lowering your taxable income.__

But an FSA is different than an HSA. Read our HSA vs FSA blog post to find out which account is better for you.

<h2 id="hsa-vs-ppo">HSA vs PPO</h2>

It's not a choice between an HSA plan and a PPO plan.

__An HSA account helps you save for medical expenses. It’s not a form of health insurance.__

__A PPO, on the other hand, is a form of health insurance.__ PPO stands for Preferred Provider Organization and refers to the type of network you can access for healthcare.

PPO plans are traditional plans that tend to have lower deductibles and higher premiums. Other healthcare plans like a health maintenance organization (HMO) have lower premiums and low or almost no deductibles, but you have a smaller choice of providers.

The question isn’t whether an HSA is better than a PPO. The question is do you want a high-deductible plan, or do you want a low deductible plan? And if you opt for a high-deductible plan then you’ll be financially efficient if you also enroll in a health savings account.

Our [HSA vs PPO blog post](https://livelyme.com/hsa-vs-ppo/) helps you decide if a PPO or an HDHP + an HSA is right for you.

<h2 id="benefits">Benefits of an HSA account</h2>

An HSA is like a supercharged IRA. It’s approved by the Internal Revenue Service (IRS). And it’s great for your federal tax and state tax returns.

That’s because your HSA contributions are tax-deductible from your income tax, __meaning you can lower your tax burden.__

An HSA offers triple tax savings:

- Pre-tax or tax-deductible contributions
- Tax-free interest and investment earnings
- Tax-free distributions, when used for qualified medical expenses

HSAs are also portable. This means that you always keep your HSA. This is true even if you change employers or stop working. Unlike a [Flexible Spending Account (FSA)](https://livelyme.com/hsas-vs-fsas/), there is no “use-it-or-lose-it” rule with HSAs. If you don’t use funds, they remain in your HSA each year. They also continue to earn tax-free interest.

So take control of your healthcare costs and plan for your future by [opening an HSA](https://livelyme.com/).

__1. Save more for your health__

Contributions to an HSA are tax deductible. Paying with these funds means you’ll pay less for health expenses.

__2. Health safety net__

Rollover your HSA funds from year to year. Unlike a flexible spending account, your contributions don’t have to be used within the year.

__3. Put your money to work__

From day 1, you can establish an investment account using your HSA contributions, with a variety of mutual funds to choose from.

__4. The 401(k) of healthcare__

After age 65 you can use your HSA money for non-health related expenses and just pay income taxes on your withdrawals. No penalty!

<h2 id="how-to-qualify">Qualifying for an HSA account</h2>

To qualify for an HSA you need to a health insurance plan known as an HDHP.

High-deductible health plans have lower premiums and higher deductibles. And to qualify for an HSA,the HDHP must satisfy certain IRS requirements with respect to deductibles and out-of-pocket expenses.

Based on 2019 IRS specifications, qualifying HSA health plans must have minimum deductibles of $1,350 for individuals and $2,700 for families. In addition, qualifying plans must have maximum out-of-pocket amounts of less than $6,750 for individuals and $13,500 for families.

With an HDHP, you generally pay more up front for medical expenses before the plan begins to pay for covered services. In return, you will generally pay less in premiums than in other medical plan options. Otherwise, an HSA-eligible health plan is much like a traditional health care plan.

For more information on if you qualify for an HSA check out [IRS publication 969](https://www.irs.gov/forms-pubs/about-publication-969%5d).

__Not sure if you qualify? Use our free calculator__

Lively created the industry’s first [HSA eligibility calculator](https://livelyme.com/signup-eligibility/). It algorithmically calculates hundreds of HSA contributions scenarios to show you exactly how much you can contribute. You can see it live here.

<h2 id="how-to-maximize">Maximizing your savings (2019 contribution limits)</h2>

To take full advantage of tax savings and to build a reserve for the future, it is suggested that you make the maximum contribution as set by the IRS. So there are HSA contribution limits? Yes.

For those of you who want the quick answer: the HSA contribution limits for 2019 are __$3500 for an individual__ and __$7000 for a family__. If you are 55 or older your catch-up contributions are limited to an __extra $1000 a year__.

Read our [2019 HSA Contribution Limits](https://livelyme.com/2019-and-2018-hsa-contribution-limits/) blog post for a complete look at contribution limits and to learn how to maximize your savings.

<h2 id="how-to-use">How to use your HSA funds</h2>

You can use your HSA funds as you would the funds in your bank account: with your debit card.

After you enroll in an HSA, Lively sends you a branded debit card.

The catch is you can only use HSA money for qualified medical expenses. These costs generally include payment to doctors or dentists, over-the-counter [prescription](https://www.nerdwallet.com/blog/health/2014/03/24/cheap-prescriptions/) drugs, imaging such as MRIs, medical services (such as home care) and medical equipment or supplies.

With a Lively HSA, you can also reimburse yourself for any qualified medical expenses that your insurance didn’t cover and you had to pay out-of-pocket.

Lively created a [free-to-use search engine](https://livelyme.com/whats-eligible/) to find out if what you want to buy is a qualified medical expense. You can also visit [HSA Store](https://hsastore.com/?a_aid=59ee38ee1506b&a_bid=87383ed8&utm_source=Lively&utm_medium=TPA+Portal+EL+List&utm_campaign=TPA+Partner) to find and purchase thousands of eligible expenses.

Q) Can an HSA be used for glasses?

A) Yes, as long as the sunglasses have prescription lenses and were not bought over-the-counter.

Q) Can an HSA be used for dental?

A) You can include in medical expenses the amounts you pay for the prevention and alleviation of dental disease. Preventive treatment includes the services of a dental hygienist or dentist for such procedures as teeth cleaning, the application of sealants, and fluoride treatments to prevent tooth decay. Treatment to alleviate dental disease include services of a dentist for procedures such as X-rays, fillings, braces, extractions, dentures, and other dental ailments.

<h2 id="how-to-open">How to open an account</h2>

Open and FDIC-insured health savings account in minutes with Lively.

Lively brings HSA into the modern era so it’s easier for you to keep healthcare costs low today and plan for the costs of tomorrow.

__1. Why Lively HSA__
<iframe title="Why Lively HSA?" width="640" height="360" src="https://www.youtube.com/embed/6Yx8YS3wQ2o?feature=oembed" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>

__2. How to easily open an HSA__
<iframe title="Setup HSA Account Tutorial 💵 How to set up a Health Savings Account with Lively" width="640" height="360" src="https://www.youtube.com/embed/jysGYakLFQ8?feature=oembed" frameborder="0" allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>

<h2 id="faq">Frequently asked questions</h2>

Q) Is an HSA also health insurance?

A) No, it isn’t. Health insurance is provided by an insurance company. An HSA is not insurance coverage. For our full answer, read our [Is HSA health insurance?](https://livelyme.com/is-hsa-health-insurance) blog post.

Q) Is an HSA tax-deductible?

A)Yes. But you need to fill out the right forms. Read our blog post on [HSA Tax Forms](https://livelyme.com/what-hsa-tax-forms-do-you-need-to-fill-we-know/).

Q) Are HSA contributions pre-tax?

A) Your HSA contributions are pre-tax if made by payroll deduction.

Q) What happens if I use my money to pay for a non-qualified expense?

A) If you are under 65 years old, you will have to pay ordinary income taxes as well as pay a 20% penalty for the amount you’re disbursed out of your HSA account. If you are 65 or older, disabled or die, then you will just pay ordinary incomes taxes (no penalty). If you find yourself in this situation, you can attempt to put money back into your HSA funds before tax time each year.

Q) Does an HSA roll over?

A) Once funds are deposited into the HSA, the account can be used to pay for qualified medical expenses tax-free, even if you no longer have HDHP coverage. The funds in your account roll over automatically each year and remain indefinitely until used. There is no time limit on using the funds.

<h2>Get a free HSA</h2>

Things like your flexibility in contributing, the ability to keep your unused balance and additional tax benefits make HSAs the wisest choice. So [sign up for an HSA – it's free →](https://livelyme.com/)

HSA Guide 

Learn how to use a Health Savings Account to pay for qualified medical expenses for you and your dependents.

Health Savings Account Guide - IRS-Qualified Medical Expenses & More

2019 HSA Guidebook

<p>It’s that time of year again, when 80% of Americans spend less than an hour researching one of the most important decisions they’ll make this year: their health coverage.  Unfortunately, this often leaves many people under-insured or without the right coverage for their needs.  To prevent this from happening to you, we have a few tips that’ll help you make the right decisions for you and your family this open enrollment season.</p>

<p></p>

<h2>Tip #1- Review Your Family’s Recent Health History</h2>

<p>To make sure you’re buying the right coverage for your family’s needs, you need to know what those needs are.  During open enrollment, roughly 90% of Americans choose the health plan they had the previous year, despite any changes in health.  Sometimes this is fine.  Other times, it leaves them under-insured.</p>

<p>So take a look at what your family’s medical needs have been over the last two years.  How did your current plan support you?  Where did it fall short?  Then ask yourself if you or a family member has been recently diagnosed with a condition that will require ongoing treatment.  If so, you’ll want to take that treatment into account when choosing a plan.</p>

<h2>Tip #2- Assess Recent or Near-Future Life Changes</h2>

<p>Are you getting married?  Pregnant or wanting to get pregnant?  Are you planning to move away from your preferred doctor and want to make sure you have access to another health provider you like?  To make the right decision for your 2019 health coverage, you’ll want to anticipate how these future changes will affect your healthcare needs.</p>

<h2>Tip #3- Check Your Current Benefit Options</h2>

<p>Plan names can stay the same but the benefits included within them could change.  So even if you keep the same plan as you had last year, it could end up costing you more or less depending on what changes your employer or the plan provider made.  Possible changes to look for are:</p>

<ul>
  <li>Coverage levels</li>
  <li>Pricing</li>
  <li>Types of products offered</li>
  <li>New providers for existing products</li>
  <li>New products from existing providers</li>
</ul>

<h2>Tip #4- Check to see if Premiums and Deductibles Have Changed</h2>

<p>Sometimes companies change the amount to which they’ll contribute to their employees’ health plans.  If your company has changed its contribution levels, this will likely affect the amount you pay in premiums and deductibles.  It might also affect the attractiveness of HSAs and FSAs in order to help with those deductibles.</p>

<h2>Tip #5- Do Your Own Research</h2>

<p>Your company will likely put out official communication regarding your benefits options and reviewing its resources is a good place to start.  But it’s not a place to end.  Many companies like <a href="https://www.alegeus.com/insights/1232-choosing-a-health-insurance-plan">Alegeus</a>, which is an administrator of health benefits for organizations, provide resources to help consumers make the right choices when it comes to their benefits.  By doing your own research, you’re more likely to get a neutral third party assessment of your plan options, and you might even find better benefits in the marketplace than your company is offering.</p>

<p>If you do find better plans that you think your company should consider, try sending them to your Human Resources (HR) Department.  When HR knows what employees need, they can make better choices in terms of what benefits they offer in the future.</p>

<h2>Tip #6- Check Your Company’s Wellness Initiatives</h2>

<p>Companies have realized that a healthier workforce is a more productive workforce.  To incentivize healthy behavior, many have started programs that reward such behavior with increased benefits like more HSA money, lower premiums and other perks.  Check with your HR Department to see if you might qualify for any increased benefits.</p>

<p>Navigating the healthcare labyrinth can feel like a job in and of itself.  But if you follow our six tips, you’re more likely to make the right decisions for your family and could end up saving money over the course of the year.</p>

open-enrollment-employee-tips.png

We have six tips that’ll help you make the right decisions for you and your family this open enrollment season. 

Open Enrollment Tips for Employees

__Editor’s note__: An earlier, and shorter version of this [blog post](https://livelyme.com/individual-vs-family-hsa/) was previously published. We published this update because it’s vital you know the differences between a family HSA and individual HSA, and how to tap into your HSA funds for your family.

---

Familiar with the tax-saving benefits of a health savings account (HSA), and wondering how you can extend those benefits to your family? While an HSA is owned by one person, there is a way to tap into those HSA funds for the rest of your family. Discover how, and the differences between a family HSA and individual HSA.

## Your HSA is Dependent on Your Health Care Coverage

To contribute to an HSA, you must enroll in an eligible [High-Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp) (HDHP). 

__For 2020, the [HSA eligibility requirements](https://livelyme.com/hsa-guide#qualifying-for-an-hsa-account) are as follows:__

- The annual minimum deductible for individual health care coverage must be $1,400. And $2,800 for family health care coverage. 
- The health plan’s out-of-pocket maximum cannot exceed $6,900 for individual coverage. And $13,800 for family coverage. 

__These eligibility requirements change in 2021:__

- The annual minimum deductible for individual health care coverage must be $1,400. And $2,800 for family health care coverage (No change from 2020).
- The health plan’s out-of-pocket maximum cannot exceed $7,000 for individual coverage. And $14,000 for family coverage ($100 and $200 increase from 2020).

## What is a Family HSA?

![what-is-family-hsa](//images.ctfassets.net/6j8y907dne6i/2AyTsX5zWqJw75Sf8dPxjn/27b942e17c0757642c853d85db8abfe4/what-is-family-hsa.jpg)

While often referred to as a “Family HSA” account, there is actually no such thing. 

Each HSA is owned by one person. But family coverage under a qualifying HDHP allows you to use your HSA to pay for qualifying medical expenses for yourself and your family. The type of health plan (individual or family) you’re enrolled in decides how much you can contribute to your HSA account in one calendar year. 

If you are enrolled in an individual qualifying high-deductible health plan, you will only be able to contribute the individual maximum contribution amount set annually by the IRS. If you and your family are covered by the same qualifying health plan, then your contribution limit is increased to the annual contribution limit set for families. One rule: To contribute the maximum family contribution limit, none of the family members can be claimed on another person’s [tax return](https://www.irs.gov/irb/2004-02_IRB). 

## Annual HSA Contribution Limits

![hsa annual contribution limit](//images.ctfassets.net/6j8y907dne6i/3mripn4V4Q51N7FfM26AEf/283c4bf5ded5d8aefbf448ea77e7b317/hsa_annual_contribution_limit.jpg)

In 2020, you are allowed to contribute the following amounts to an HSA:

- $3,550 for individual health plans
- $7,100 for family health plans

These contribution limits change slightly in 2021:

- $3,600 for individual health plans
- $7,200 for family health plans

If enrolled in an HSA-eligible HDHP, and at least 55 years old—or will be 55 any time in the calendar year—you can make an extra $1,000 contribution. This is a [“Catch-Up” Contribution](https://livelyme.com/what-is-an-hsa-catch-up-contribution). 

The catch-up contributions for 2020 and 2021 are the same: $1,000 on top of your maximum contribution limit.

## Real-Life Examples
### Individual Health Plan with HSA

During open enrollment, James chooses an HDHP because he wants to take advantage of his employer’s contributions to an HSA. James is not currently married and doesn’t have any dependents, so his health plan will cover only him.

As an individual, James can contribute $3,550 dollars into his HSA account in 2020 without a penalty.

### Family Health Plan with HSA
Fast forward a few years, and James is now married with two children. James is at a different company, but still has his HSA and an HDHP that covers him and his family.

James is now eligible to contribute the family limit to his HSA. We won’t know exactly what that amount will be in the future. But if James had his family covered by his health plan in 2020, he would be able to contribute $7,100 within one calendar year.

## Can I Have a Joint HSA With My Spouse?
![no-joint-hsa-with-spouse](//images.ctfassets.net/6j8y907dne6i/4JyBNCLJUiCy6ietwyTrGn/588c28e6b0352282f87b6d0c6643cfe9/no-joint-hsa-with-spouse.jpg)

*Short answer:* No. An HSA is owned by one person. 

Yet, there is a way for you and your spouse to have HSAs of your own. If you and your spouse are covered under the same HDHP, you can each open your own HSA and contribute separately. But, the amount you and your spouse contribute, combined, cannot exceed the contribution limit for a family plan. 

### Real-Life Examples:

#### Family HSA Contribution Limit with Two Accounts

Jack and Diane are married and covered under Jack’s high-deductible health plan. Diane wants to take advantage of her employer’s HSA contributions, so she decides to open up an HSA of her own. 

In 2020, Jack and Diane’s total contributions cannot exceed $7,100. That means that whatever Jack contributes to his HSA and whatever Diane contributes to her HSA added together needs to be $7,100 or less. 

Jack and Diane can use these funds to pay for the [qualified medical expenses](https://livelyme.com/whats-eligible/) of those covered under their health plan, including each other.

#### Family HSA Contribution Limit with One Account

The other option is to have the entire amount of the HSA in one account holder’s name. In this case, Jack opts not to contribute anything into his HSA for the year, and Diane and her employer will be able to contribute the entire amount into her account.

## The Benefits of an HSA

![hsa-retirement-benefits](//images.ctfassets.net/6j8y907dne6i/1okT5ICuYiKx6c18Oof9dK/0e331b4135f6588ed8df49e0f2a24bdd/hsa-retirement-benefits.jpg)

There are four primary [benefits of having an HSA](https://livelyme.com/what-are-the-benefits-of-an-health-savings-account).

1. __Three levels of tax savings__. Pre-tax or tax-deductible contributions. Tax-free interest, and investment earnings. And tax-free withdrawals when used for qualifying medical expenses.
2. __Portability__. HSAs aren’t tied to your employer. If you decide to move to a different company or retire, your HSA stays yours. The funds added to your account stay there until you choose to withdraw or roll it over; like a 401(k).
3. __ A safety net in the event of a health-related emergency__. An HSA helps you save for the unknown. It can be used for unexpected health care expenses or health insurance if you’re between jobs. An HSA covers all qualified medical expenses, even after a change of plans or providers.
4. __ Flexibility in retirement__. When you turn 65, your HSA can be used for non-health-related expenses without penalties; like a 401(k), or IRA.

An HSA is a great safety net in the event of a health-related emergency. And with options to invest, choosing to open an HSA is one of the best financial choices you can make for you and your family. 
















family hsa and individual hsa contributions are dependent on health care coverage

family-hsa-vs-individual-hsa

Learn the differences between a Family HSA vs Individual HSA. And how to extend HSA benefits to your entire family. 

Family HSA vs Individual: What’s the Difference?

Dividing your assets, such as 401(k)s and Health Savings Accounts (HSAs) is a central piece of negotiating a divorce settlement. If you receive health insurance through your spouse’s employer, you want to carefully consider whether it makes sense to stay on your partner’s health insurance after you divorce.

## Tips for navigating health insurance when divorcing

### You can pay for health insurance through an ex’s health insurance.

If your health insurance was through your partner’s workplace plan, you may be able to stay on the plan for up to 36 months. The federal COBRA legislation requires any firm or organization with at least 20 employees to offer health insurance to the divorced partner. If your soon-to-be-ex works for a smaller employer, you may be eligible for extended COBRA coverage through a state-run plan.

But there’s a big expensive catch to COBRA health insurance coverage: Once you are divorced, the employer no longer will subsidize the premium cost for the non-employee. 

You will be required to pay the full cost. According to the Kaiser Family Foundation, the average monthly premium for single coverage through a group plan was nearly $7,200 in 2019.  And the employer is also allowed to tack on an additional 2% annual fee to cover administrative charges.

### Check out your employer’s health insurance. 

If you were on your partner’s plan because it was more robust or cost-effective than the plan offered by your employer, time to circle back to your workplace plan. It may now be more cost-effective than staying on your ex’s plan through COBRA. 

Getting divorced is considered a [qualifying life event](https://livelyme.com/life-events-that-can-change-your-healthcare-costs), so you’ll be able to enroll for health insurance outside of open enrollment. 

### Compare COBRA coverage to an ACA-marketplace plan.

Before you finalize your divorce, spend some time pricing out purchasing your own health insurance through the ACA marketplace. Depending on your income you may be eligible for subsidies. You can start your search at the [healthcare.gov](https://www.healthcare.gov/) website.

### Include the cost of paying for health insurance in your divorce negotiations. 

It’s likely that whatever health insurance solution you land on, the premium is going to be a sizable line-item cost in your monthly budget. You should factor that into negotiations for assets. And keep in mind that if there is a family HSA account that has a sizable balance, that is a valuable asset to also bring into your discussions. 

### Consider a legal separation as a temporary step. 

If you are legally separated, but not divorced, you may be able to stay on a spouse’s plan, but it varies by employer and insurer.

### Sort out who pays for insurance coverage of the kids.

This is obviously a key part of your divorce negotiation. If you opt for joint custody and you both assume responsibility for health insurance, the spouse whose birthday falls earlier in the calendar year will have the “primary” insurance for the children. If there isn’t joint custody, the custodial parent typically assumes responsibility for health insurance for children. If the custodial parent remarries, and doesn’t have health insurance, the responsibility can fall to the custodial parent’s new spouse. If that isn’t an option the non-custodial parent will be required to step in and provide health insurance coverage.

Given the complexity of divorce, including health insurance coverage. consulting with a lawyer experienced in divorce law is a smart move to ensure that everyone in the family is covered. 



stay-on-insurance-divorce

Divorce is a complicated process - and it doesn't help that your health insurance gets tied up into the process as well. We detail some information that you will need to know regarding your healthcare if you are getting divorced from your partner.

How Long Can I Stay on My Partner's Insurance After a Divorce? 

<p>Helping employees understand the benefits of an HSA (like any new HSA user), takes time and resources. In order to make the HSA education and engagement process easier for employers and employees, we have outlined our best practices.</p>
<p></p>
<p>Our employee HSA education guide will help you get HSA strategies&nbsp;in place from day 1 so employees can take advantage of the&nbsp;<a href="https://livelyme.com/what-are-the-benefits-of-an-health-savings-account/">triple-tax benefits</a>&nbsp;immediately.</p>
<h2>HSA Employee Education Tips</h2>
<p>Opening, establishing and contributing to an HSA should be easy.&nbsp;It shouldn&#8217;t be rocket science, that&#8217;s at least what we think at Lively! Here is what every employee needs to know to get started with their new HSA:</p>
<ol>
<li>Confirm&nbsp;<a href="https://livelyme.com/hsa-eligibility-details/">HSA-Eligibility</a></li>
<li>Understand&nbsp;<a href="https://livelyme.com/2018-hsa-contributions/">Contributions&nbsp;Limits</a></li>
<li><a href="https://livelyme.com/add-1-hsa-day-1/">Open and Establish their HSA</a></li>
<li>How to&nbsp;<a href="https://livelyme.com/hsa-rollovers-transfers/">Rollover or&nbsp;Transfer</a>&nbsp;an Existing HSA</li>
<li><a href="https://livelyme.com/set-forget-hsa/">Automating HSA Contributions</a></li>
<li>Use an HSA&nbsp;<a href="https://livelyme.com/hsa-debit-card/">Debit Card</a>&nbsp;for Eligible&nbsp;Purchases</li>
<li>Review&nbsp;<a href="https://livelyme.com/can-i-invest-my-hsa-money/">HSA Investment</a>&nbsp;Options</li>
</ol>
<p>No employer health or financial situation is the same. Once employees have opened&nbsp;an HSA, customizing&nbsp;HSA strategies can help each and every eligible employee take advantage of their HSA benefits. This will better ensure success (and renewal). Let&#8217;s look at two likely employee HSA scenarios:</p>
<ul>
<li><b>HSA Saver</b>&nbsp;&#8211; HSA savers are more focused on the long-term savings value of an HSA. They can invest their funds or simply take advantage of FDIC-Insured interest bearing&nbsp;HSA accounts. Thereby taking advantage of compound interest and save HSA funds for future health costs.</li>
<li><b>HSA Spender</b>&nbsp;&#8211; These employees are using pre-tax HSA funds to pay for expected and unexpected health costs. They can use their dedicated HSA funds to reduce their out-of-pocket health expense liability.</li>
</ul>
<p>Many HSA account holders are a mix of both. Helping employees save for health costs today and plan for anticipated health costs well into retirement will only increase HSA adoption.</p>
<h4>Employee Engagement and Support</h4>
<p>Things come up. Employees get stuck. We get it. We have&nbsp;been through it ourselves. Making sure on-demand support options are available for employees is crucial in this process. It saves everyone time. Employee HSA education is an ongoing process. So we created an on-demand resource center to help &#8211; from an&nbsp;<a href="http://support.livelyme.com/">HSA FAQs</a>&nbsp;to&nbsp;<a href="https://livelyme.com/calculator/">HSA saving calculators</a>. We backed it all up with a dedicated&nbsp;customer&nbsp;service team to answer employee&nbsp;questions via&nbsp;<a href="mailto:support@livelyme.com">email,</a>&nbsp;<a href="tel:1-888-576-4837">phone</a>&nbsp;or chat (via our website).</p>
<h4>Don&#8217;t&nbsp;Forget! Talk About Retirement &amp; Health Costs</h4>
<p>Many employees are stuck on a year-to-year&nbsp;ferris&nbsp;wheel when it comes to health insurance and cost planning. Employees are forced into rising yearly health insurance premiums and out-of-pocket costs. Not planning for health costs in retirement &#8211; which are&nbsp;<a href="https://www.cnbc.com/2017/11/24/health-care-costs-in-retirement-can-top-275000.html">expected to exceed&nbsp;$275,000 per couple</a>&nbsp;&#8211; can be a financial mistake. Employees can use their HSA to plan and save for retirement. In fact, an HSA might be the&nbsp;<a href="https://livelyme.com/stealth-ira/">new stealth IRA</a>.</p>
<p>Opening an HSA is easy (at least at Lively). Helping employees understand the value of an HSA should be too. Use this employee HSA guide&nbsp;to fast-track benefits education to save employees time.</p>

Employee-HSA-Guide.jpg

Helping employees understand the benefits of an HSA (like any new HSA users), takes time and resources. In order to make the HSA education and engagement process easier for employers and employees, we have outlined our best practices.

Employee HSA Guide

Lively Blog

__Editor’s note:__ An earlier, and shorter version of this [blog post](https://livelyme.com/what-is-an-hsa/) was previously published. We published this update to provide a more comprehensive response to “What is an HSA?” This new blog outlines the rules and uses of account ownership, and more.

---

It’s a fact. The cost to be - and stay - healthy rises each year. And even the comprehensive  (expensive) health insurance plans are covering less for the cost of care. So what’s a person to do? Open an HSA.

A Health Savings Account (HSA) allows you to set aside money on a pre-tax basis to pay for qualified medical expenses. You, your employer, and even friends and family can contribute money to your HSA. The contributions are tax-deductible and never expire. So you can save them for a rainy day, retirement, or to help pay for an expensive procedure you have coming up.

## How Do I Qualify for an HSA?

To qualify for opening and contributing to an HSA, you must meet these criteria:

1. You must enroll in a [High-Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp) (HDHP). In 2020, the IRS defined HDHPs as any plan with a deductible of at least $1,400 for an individual and $2,800 for a family. The total annual out-of-pocket expenses can’t exceed $6,900 for an individual or $13,800 for a family.  
2. You can’t have any other supplemental health insurance coverage. Meaning, you can’t be covered under your spouse’s health insurance plan too.
3. You must not be eligible for or enrolled in Medicare.
4. You must be under the age of 65.
5. You can’t contribute to a [Health Flexible Spending Account](https://livelyme.com/what-is-a-healthcare-fsa) (HFSA). But you can contribute to a [Dependent Care](https://livelyme.com/dependent-care-fsa-dcfsa-work) (DCFSA) or [Limited-Purpose FSA](https://livelyme.com/what-is-a-limited-purpose-fsa) (LPFSA) and contribute to a health savings account in the same year.

## How Does a Health Savings Account Work?

![how-does-health-savings-account-work](//images.ctfassets.net/6j8y907dne6i/3zynuAFE9SoOfJRy8MT7lO/d0078bf16189f8141aeeaa5b7ae1da54/how-does-health-savings-account-work.jpg)

### Step 1: Elect a high-deductible health plan during open enrollment.

### Step 2: Open a health savings account and decide how much you want to contribute. 

To enroll in an employer-sponsored health savings account, you'll likely open your HSA during open enrollment. Let your employer know how much you want to contribute for the year (up to the IRS contribution limit). And your employer will begin making payroll deductions each month.

Your employer may choose to contribute to your HSA. But they’re not required to. If they do, those contributions will count toward your annual limit. But will remain tax-free to you.

Maybe your employer doesn’t offer a health savings account. Or it’s outside of open enrollment and you want to get started on saving for your health care costs today. You can open an HSA with a financial institution in the private market.

With this route, you will make arrangements to fund your HSA with the account administrator. And your contributions will be deducted from your gross taxable income when you pay taxes for that year.

### Step 3: Use your funds for qualified medical expenses.

To use your funds, your account administrator may provide a debit card so you can pay for your health care costs at the point of sale. Or you will pay for costs upfront and submit documentation for [reimbursement](https://livelyme.com/hsa-reimbursement-rules). Your withdrawals are tax-free as long as you use the money to pay for qualified medical expenses. If you use your money for something else, the money you withdrew will be subject to income tax plus a 20% penalty.

![mobile-wallet-hsa-expenses](//images.ctfassets.net/6j8y907dne6i/xFSNWNpRjvuAnTymT4F18/108a46d5452cfb9b855a03c76bab9755/mobile-wallet-hsa-expenses.jpg)

__Additional health savings account details:__

- You own your account so you can take it with you from employer-to-employer (or employer to unemployed). 
- Even if you choose a health insurance plan that isn’t an HDHP, you can still use past contributions for out-of-pocket, qualified medical expenses. But you won’t be able to contribute to your account.
- Employer contributions are tax-free.
- If you’re under the age of 65, you must use your contributions for qualified medical expenses.
- Once you reach 65, you can no longer contribute to your account. But you can use your savings to pay for whatever you’d like.  
- An HSA offers triple tax savings: pre-tax or tax-deductible contributions, tax-free interest and investment earnings, and tax-free distributions when used for qualified medical expenses.

## How Much Can I Contribute to My HSA?

[Contribution limits](https://livelyme.com/hsa-guide#maximizing-your-savings) are set annually by the Internal Revenue Service. 

For __2020__, those limits are:

- $3,550 for someone with an individual health plan.
- $7,100 for a family health plan.
- An additional $1,000 “catch-up” if one or both members of the family are aged 55 or older.

For __2021__, those limits are: 

- $3,600 for someone with an individual health plan.
- $7,200 for a family health plan.
- An additional $1,000 “catch-up” if one or both members of the family are aged 55 or older.

## What Can I Use a Health Savings Account For?

![hsa-eligible-expenses](//images.ctfassets.net/6j8y907dne6i/42Oe00AuAcE2fs9KFkcmHS/b30013424117eb2a8c42b7c42b094e5c/hsa-eligible-expenses.jpg)

HSA-eligible expenses include (but are not limited to):

- Deductibles
- Copays
- Coinsurance
- Out-of-pocket costs related to diagnostic services like x-rays and blood tests
- Prescriptions
- Quality of life enhancers like air purifiers (with a letter of medical need)
- Medical supplies like band-aids and crutches
- Alternative medicine treatments like acupuncture

This list is not exhaustive. For a comprehensive list of IRS-qualified medical expenses check [“What’s Eligible."](https://livelyme.com/whats-eligible)

## What Happens to My HSA if I Switch Employers?

You get to keep your account and every dollar you’ve saved. Although you may not be able to continue contributing to that same account. 

If your new employer uses a different health savings account administrator, you will have two options. Roll the HSA from your previous employer into the new account or maintain two different HSAs. One account from your previous employer - from which you can withdraw but not contribute. And one from your current employer into which you can start contributing.

For more details about your specific situation, contact your HR department.

## Where Can I Sign-Up for an HSA?

![sign-up-lively-hsa](//images.ctfassets.net/6j8y907dne6i/4sUTWDriKFMgGBrIHxeyH9/a36ee79d497005f21445666727ab98e6/sign-up-lively-hsa.jpg)

You can sign up for an HSA in two places. Through your employer, if it offers this benefit. Or through a financial institution in the private market.

Here, at Lively, we offer a private-market HSA that allows you to put your contributions into mutual funds or other investments. That way you can access an even greater benefit: growing your money with the market.

As you can see, there are many ways an HSA can help you save money for health care expenses and retirement. A health savings account can also offer security should you lose your health insurance coverage for a period of time. For more information about HSAs, check out our [HSA Guide](https://livelyme.com/hsa-guide).







what-is-hsa

Learn more about HSAs including the qualifications for opening and contributing to a health savings account, how much you can contribute annually, how to use your account for qualified medical expenses, and more.

What is an HSA? Qualifications, Contributions, Uses, and More

*__Editor’s note:__ This post was originally published on June 29, 2017 and updated on September 3, 2020.*

In a world of text, chat and email it can feel like everything is (or has) an acronym. Health insurance plans are no exception. You may have come across the acronym HDHP and are wondering "What is a High Deductible Health Plan (HDHP)?" Continue reading to learn how choosing an HDHP could benefit you. Provided it gives you the coverage you need.

To start, an HDHP is a health insurance plan defined by lower premiums and a higher deductible. But don't let "higher deductible" scare you off. Here are two reasons why an HDHP could make sense for you:

1. All preventative care is covered before the deductible, and
2. HDHPs are an affordable way to get the coverage you need without paying more for extras you may not need.

HDHPs are also the only health insurance option that can be paired with a Health Savings Account (HSA). An HSA can help pay for the high-deductible or to save money for future medical costs.

<iframe src="https://player.vimeo.com/video/377355900" width="640" height="360" frameborder="0" allow="autoplay; fullscreen" allowfullscreen></iframe>

## What is Considered an HSA-eligible HDHP?

Annually, the IRS redefines what it considers an HDHP (adjusting for inflation). In 2020, their parameters were a [health plan](https://livelyme.com/hsa-guide) with a deductible of at least $1,400 for an individual and $2,800 for a family. As well as out-of-pocket expenses that didn’t exceed $6,900 for an individual and $13,800 for a family.

In 2021, the minimum deductibles will be the same. But the maximum out-of-pocket limits will rise to $7,000 for an individual and $14,000 for a family.

There's one other qualifying characteristic of HDHPs. The individual pays for the cost of healthcare, up to the deductible, before insurance pays for services. The one caveat here is preventative care. All preventative care is covered before the deductible.

## How Does a High Deductible Health Plan Work?

![preventative-care-included-hdhp](//images.ctfassets.net/6j8y907dne6i/5j1glZm5E5y47Fi5eW2T2K/1ebc0d46beb92be8021d514656948957/preventative-care-included-hdhp.jpg)

HDHPs charge participants lower monthly premiums. This is in exchange for requiring higher deductibles and out-of-pocket maximums.

Choosing an HDHP could make sense if you don't need many health care items or services. Or if you only visit the doctor for preventative care. This is because you'll be spending less on your monthly [health insurance plan](https://livelyme.com/compare-health-insurance-plans) premium. An HDHP could also make sense if you need more care. Here's why.

Because HDHPs have a higher deductible, the IRS allows you to deposit pre-tax money into a savings account called an HSA. Also known as a [Health Savings Account](https://livelyme.com/what-is-hsa). HSAs are tax-advantaged accounts because contributions are pre-tax.

The distributions and any gains those contributions make can also be tax-free. That's as long as the contributions are used to pay down your deductible or to pay for other qualified medical expenses. Depending on your tax bracket, this could help you save up to 30% on medical expenses.

Where an HDHP could get you into trouble is if you suffer a catastrophic event that requires an expensive procedure or treatment. And you can’t afford the out-of-pocket maximum. Or if you have or develop a chronic condition that needs management.

__Decide which plan is right for you with our [Health Plan Comparison Calculator](https://livelyme.com/compare-health-insurance-plans).__

To choose an HDHP, you would make the election during the open enrollment period for either your place of employment or in the private market. The other time is after a [Qualifying Life Event](https://livelyme.com/when-should-i-consider-changing-my-health-plan). If you’ve experienced a life event like the loss of health insurance, marriage, the birth of a child, or death of a dependent, you can sign up for an HDHP at any time during the year with a special enrollment period.

## What Are the Benefits of a High Deductible Health Plan (HDHP)?

![high-deductible-health-plans-lower-premium](//images.ctfassets.net/6j8y907dne6i/45YNFcVTSqOIH1GiPuzUVQ/150ddbbe5981bcf60c7150e50f13f6d1/high-deductible-health-plans-lower-premium.jpg)

Whether you’re considering an HDHP or have been using one for years, there’s no question that higher deductibles are a tough pill to swallow. The good news is, this type of health plan does offer some unique flexibility and opportunities that other health insurance plans lack.

1. __Flexibility__ – HMO health insurance plans require referrals from a primary care physician. This can be extremely frustrating for individuals who need to have some kind of care outside of a general practitioner. While HDHPs still have in and out of network designations, the list of in-network providers is extensive. And you can see a dermatologist, cardiologist, or other specialists even if you haven’t yet designated a primary care physician.
2. __Lower cost__ – The problem with large, overarching health plans is they try to cover everyone. This might sound good on paper, but not in practice. This often leads to people with low health care needs paying more to cover people with high health care needs. HDHPs reward limited use of the medical system by charging participants low monthly premiums. While also covering preventative care before the deductible is met.
3. __Health savings for the long term__ – HDHPs are the only health insurance plan that you can pair with an HSA. You own the contributions both you and your employer make to your HSA. And they never expire. The funds can be saved or invested in stocks and mutual funds, making these accounts function as a medical safety net. This is beneficial if you lose your employment or your employer changes your health insurance options. Or if your health insurance company decides to discontinue the plan you’re on, or you experience a catastrophic event. Any of which could leave you scrambling to cover unexpected medical expenses. And in the event you don’t spend your contributions before the age of 65, you can use that money, tax-free, for any expenses. Just like another retirement account. 

## How Do I Know If an HDHP Is Right for Me?

![is-hdhp-right-for-me](//images.ctfassets.net/6j8y907dne6i/1lGHA7VDq1QmkbEHtrozbq/8ce9096c3149cd21eca124e9fb2a5cf3/is-hdhp-right-for-me.jpg)

*The right health insurance plan for you lies at the nexus of affordability and appropriate coverage.* You must be able to afford the monthly premium but also the annual out-of-pocket maximum in case you experience a catastrophic event.

The plan must also provide adequate coverage for your current medical needs. As well as those in the foreseeable future (e.g. having a baby, knee surgery, etc.). Inadequate coverage could cause your out-of-pocket expenses to get out of hand quickly.

So take a look at the specifics for the HDHP you’re being offered. Can you afford that monthly premium? If yes, then take a look at what procedures, treatments, and prescriptions are covered and at what levels. When taking coverage levels into account, can you afford the copays, co-insurance, and other out-of-pocket costs?

Do you have the ability to contribute even a small amount to an HSA? Something to remember about HSAs is the money is contributed pre-tax. That means you could end up saving up to 30% on medical expenses depending on your income taxes bracket.

If, after answering these questions, an HDHP looks like it makes financial sense, then it could be the right plan for you. If you have questions about your specific situation, you should always reach out to your HR department.

HDHPs are often thought of as an affordable health insurance option, especially for the healthy or if you know you’ll exceed your out-of-pocket maximum. Combine an HDHP's monthly affordability with the option to pair the plan with an HSA, and you have an attractive setup. Not only for those who have limited medical care needs but those who can afford to contribute a little extra each month toward future costs and savings. 

discover "what is a high deductible health plan?"

what-is-a-high-deductible-health-plan

Wondering “What is a High Deductible Health Plan?” Discover how they work, the benefits, and if an HDHP is right for you.

What is a High Deductible Health Plan (HDHP)?

__Editor’s note:__ *This post was originally published on March 17, 2018 and updated on September 2, 2020.*

You’ve heard about HSAs and FSAs. And you think they are a good way to save money for and on medical expenses. And your employer offers both as part of its benefits plan. 

You’re in luck. You get to choose the option best suited to your needs. And yes, you do have to choose. Because you can’t contribute to an HSA and a Healthcare FSA at the same time. Let’s discover which account type will win in HSA vs FSA.

So how do you choose? To make the best decision for you and your family, consider the details of each account. And compare those to the realities of your family’s medical and financial needs.

To start, let's look at what these accounts have in common.

Health Savings Accounts (HSA) and Healthcare Flexible Spending Accounts (FSA) are pre-tax accounts. And are both used to pay for qualified, out-of-pocket medical expenses. These include, but aren’t limited to, copays, deductibles, coinsurance, and prescriptions. Because contributions are pre-tax, you can save up to 30% on those out-of-pocket expenses. Depending on your tax bracket.

How are HSAs and FSAs different? Account functionality and account holder requirements are different for the two account types. Let’s learn a little more about each account type.

## What is a Health Savings Account?

![how-to-choose-between-hsa-fsa](//images.ctfassets.net/6j8y907dne6i/1JfvzE56bAaAExlGqDmfjd/eafd5bc19e833ef342e4349e4eb6f630/how-to-choose-between-hsa-fsa.jpg)

A [Health Savings Account](https://livelyme.com/what-is-hsa) is a kind of savings account that allows you to save for health care costs. And reduce your taxable income. In other words, HSAs are individually owned, tax-advantaged medical savings accounts. You can open one as an individual or as part of a family plan. As long as you and your family are enrolled in an HSA-eligible [High Deductible Health Plan](https://livelyme.com/what-is-a-high-deductible-health-plan-hdhp/) (HDHP).

### What’s Considered an HSA-eligible Health Plan?

For 2021, the IRS considers HSA-eligible HDHPs to be [health plans](https://livelyme.com/hsa-guide#qualifying-for-an-hsa-account) with a minimum deductible of $1,400 for individuals. And $2,800 for families. And a maximum out-of-pocket amount of $7,000 for individuals and $14,000 for families.

The IRS adjusts its allowed annual HSA contribution limits annually for inflation. Those limits for 2021 are $3,600 for individuals and $7,200 for families. If you have a [mid-year change](https://livelyme.com/hsa-contribution-limits-mid-year-changes) – like moving from self-only coverage to family coverage, or vice versa, then your annual contribution limit becomes prorated.

### How Does an HSA Work?

When you open your HSA, you choose how much you’d like to contribute annually. Then, your employer will deduct the appropriate amount from each paycheck. Your employer may choose to also contribute to your account. But they’re not required to.

If they do contribute, those contributions will count toward your [maximum annual limit](https://livelyme.com/hsa-guide#maximizing-your-savings). Choose your individual contribution amount carefully. And keep in mind that contributions are cumulative. Otherwise, you could end up going over the annual contribution limit.

If you’re under the age of 65, you must use your contributions to pay for qualified medical expenses. These include, but are not limited to:

- Copays
- Coinsurance
- Deductibles
- Acupuncture
- Mental health treatment
- Prescriptions
- Medical supplies like [bandages](https://hsastore.com/SearchProducts.aspx?q=band+aid&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [crutches](https://hsastore.com/SearchProducts.aspx?q=crutches&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [joint braces](https://hsastore.com/SearchProducts.aspx?q=braces&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and more
- Hearing aids
- Dental health
- Vision tests

Want to see the full list of HSA-eligible expenses? Visit [What’s Eligible?](https://livelyme.com/whats-eligible/)

### How Age Affects HSA Use & Taxes

![age-affects-hsa-taxes](//images.ctfassets.net/6j8y907dne6i/1mxiaR9se6IhBYokKGgsdd/86de5569ecab00a84ae82f763e30789e/age-affects-hsa-taxes.jpg)

If you’re under the age of 65 and use your contributions for qualified medical expenses, those funds are not subject to federal income tax. But, your state tax liability for contributions depends on your state.

If you choose to use the money for something other than qualified medical expenses, you will incur a 20% tax penalty. And have to pay income taxes on the misused money. After age 65, you can use your health savings on anything you want provided income tax is paid on the amount of the non-qualified disbursement.

## What is a Flexible Spending Account (FSA)?

A [Healthcare FSA](https://livelyme.com/what-is-a-healthcare-fsa), aka Healthcare Flexible Spending Account, is a spending account your employer makes available to pay for medical expenses with pre-tax dollars.

### How Does a Healthcare FSA Work?

If you decide you would like to open an FSA, the good news is that you don’t have to purchase a specific health plan. In fact, you don’t have to purchase any health plan.

But you must elect to participate during your employer’s open enrollment period. Or within 30 days of starting employment if you begin your job mid-year. Then, you select the amount you would like to contribute to your account at that time. Your employer will then deduct the appropriate amount from each paycheck.

Your employer can choose to contribute to your FSA but is not required to do so. And their contributions don’t count toward your annual max. Unfortunately, you can’t change this election at any point outside of open enrollment. Unless you’ve experienced a [qualifying life event](https://www.healthcare.gov/glossary/qualifying-life-event/) like the birth of a child, death of a dependent, marriage, or divorce. 

![qualifying-life-event-fsa-contribution-amount](//images.ctfassets.net/6j8y907dne6i/td25GiIFP70vewqfrlrSD/751854829eee489fc8a0c81fddb11efb/qualifying-life-event-fsa-contribution-amount.jpg)

You also lose any unused money at the end of the year. Unless your employer offers either the option to rollover $500 to next year’s account or a 2.5 month grace period during which you can use leftover funds. So choose your contribution amount carefully.

Like with HSAs, the IRS imposes an annual limit on FSA contributions that adjusts annually for inflation. For 2021 that limit is $2,750. Unlike HSAs, FSAs are only opened on an individual basis, so there are no “family plan” increases for annual contribution limits. But if both you and your spouse are offered the opportunity to take part in an FSA at work, you can do so and each can contribute up to the maximum allowed amount.

FSA funds can be used to pay for out-of-pocket medical, vision, and dental expenses not covered by your health insurance plan. Including, but not limited to:

- Copays
- Coinsurance
- Deductibles
- Acupuncture
- Mental health treatment
- Prescriptions
- Medical supplies like [bandages](https://fsastore.com/SearchProducts.aspx?q=bandages&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [crutches](https://fsastore.com/SearchProducts.aspx?q=crutches&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), [joint braces](https://fsastore.com/SearchProducts.aspx?q=joint%20braces&utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner), and more
- Hearing aids
- Dental health
- Vision tests

For a full list of medical expenses that you can use your FSA (or HSA funds) on, check out [Publication 502](https://www.irs.gov/forms-pubs/about-publication-502) from the IRS. You can also visit the [FSA Store](https://fsastore.com/?utm_source=Lively&utm_medium=TPA+Public+Proprietary+EL&utm_campaign=TPA+Partner).

## Choosing Between an HSA and Healthcare FSA

![choose-between-hsa-fsa](//images.ctfassets.net/6j8y907dne6i/EqKcpDQS9JGMip8psYcVj/994cea7acae40c6fc14eecff7688fdfc/choose-between-hsa-fsa.jpg)

### Eligibilty Requirements

- __FSA:__ Only employers can establish an FSA plan for employees to contribute. Employees can open an FSA regardless of if they have a HDHP or not. Self-employed individuals cannot open an account.
- __HSA:__ Employees are eligible only if they have an [HSA-eligible HDHP](https://livelyme.com/hsa-guide#qualifying-for-an-hsa-account). Individuals are not dependent upon their employer to offer an HSA. And an HSA can be opened from the private market. Self-employed individuals can open an account.

### Contribution Sources & Changes

- __FSA:__ The contribution amount is chosen during open enrollment or at the time of a qualifying life event. And the contribution amount can not be changed outside of these two time periods.
- __HSA:__ You can change your contribution amount at any time, no major life event required. This gives you the flexibility to increase or decrease your contribution at any time. *__Multiple contribution sources:__* You can grow your HSA in multiple ways. Not only can you add money to your HSA, but your employer, relatives, or anyone who would like to contribute can help your HSA grow.

### Rollover Rules

- __FSA:__ Employers choose whether an employee can keep their unused funds or not. There are three options: *__Forfeit__*: Employee forfeits money, and employers get to keep it. *__Grace period__*: Employee has a 2.5 month grace period after the plan year ends to use on expenses. Any remaining money after the grace period is employer’s. *__Carryover__*: Employees can add up to $500 of unused funds to next year’s plan (in addition to contribution limit). Employers decide the carryover limit, and any funds over the limit are the employer’s.
- __HSA:__ Funds do not expire from year-to-year. Rollover money is in addition to the contribution limits. Money in your HSA can be carried with you and is available even if you change health insurance plans, get a new job, or retire. And funds left in your account grow tax-free through interest or any investment gains.

### Account Ownership

- __FSA__: An FSA is owned by the employer. Unused funds belong to employers, not the employee.
- __HSA__: Funds stay with you. One of the best perks of an HSA is that the money you save always stays with you because you own the account. If money is left in your HSA at the end of the year, it stays put. No scrambling around trying to find ways to spend the money before the timer runs out.

### Access to Money

![accessing-hsa-fsa-contributions](//images.ctfassets.net/6j8y907dne6i/4lJ6EN6128M5SHmAuh8hzk/60301225072d2cec1be8a6e2fda926ca/accessing-hsa-fsa-contributions.jpg)

- __FSA:__ Money available from day one. Every penny you contribute to your FSA is available at the beginning of the benefit year. Or shortly after the first contribution is made. Say you add $2,000 to your FSA for the year, you’ll likely contribute about $80 per paycheck. Yet, the entire $2,000 is available to use at any time even though you only make small contributions during the year. Another perk? If you leave a position before the year is over, the money spent from your FSA doesn’t have to be paid back.
- __HSA:__ As the employee contributes to their plan. An employee only has access to what has actually been deposited into their HSA account.

### HSA: A Savings Asset

- *__After the age of 65, your HSA functions like any other retirement account.__* And you can use your HSA money on anything you wish. How does it differ from other retirement accounts? You don’t pay income taxes on money used for medical expenses. You do, however pay income taxes on money used for anything else.
- *__HSAs are assets you can pass on to your kin:__* If your spouse inherits the HSA, it retains its status as a retirement-like account. With the same rules and allowances as it had when you were the account holder. If you pass it on to someone other than your spouse, it stops being an HSA, and inheritance laws apply.

## Is an HSA or FSA Better for You?

![is-hsa-fsa-better](//images.ctfassets.net/6j8y907dne6i/7dkm3u9Ez0B7z6r7ZndKdK/d746299a286d54387aae669880b9cbb2/is-hsa-fsa-better.jpg)

Deciding between an HSA and FSA depends on your medical and financial needs. The principal requirement for an HSA is enrollment in an HDHP. And while preventative care is covered before the deductible under HDHPs, most other care is not. That means you will have to pay for your medical expenses for you and your family out-of-pocket until you reach your deductible.

An HSA-eligible HDHP makes the most sense in two cases. First, if you or one of your family members has a condition that needs managing by either a specialist or with speciality prescriptions or treatments. In this case, you’ll likely exceed the deductible and be able to use HSA funds to save up 30% on out-of-pocket medical costs.

Secondly, if you rarely use the medical system except for routine preventative care (that includes vaccines and well visits for children) and really want the ability to use your pre-tax account as an investment vehicle to save for retirement. Then, an HSA/HDHP arrangement may be the best choice for you.

To make the best decision for you and your family, start by assessing your past medical needs and those you can project. Then take a look at your finances. Choose the account and health insurance plan arrangement that sits at the nexus of best health coverage and account flexibility.

hsa-vs-fsa

An HSA and FSA provide up to 30% savings on out-of-pocket healthcare expenses. But you can’t contribute to both at the same time. Let’s explore each account type to help you decide which wins in HSA vs FSA.

HSA vs FSA: How to Choose Between an HSA and Healthcare FSA

pexels-photo-259363.jpeg

Paying for out-of-pocket medical expenses with an HSA and paying lower premiums with higher deductible heath care is better than a PPO plan.

HDHP HSA vs PPO Plans: Which is better for healthcare?

HDHP HSA vs PPO: Is HSA or PPO Better?

Editor’s note: An earlier, and shorter version of this [blog post](https://livelyme.com/what-does-it-mean-to-reimburse-myself-with-my-hsa) was previously published. We published this update to help you learn about HSA reimbursement rules and choose the best timing for your reimbursements. Plus, learn how delaying reimbursement can build wealth and security in retirement.

---

When you have a medical expense there are two ways of paying. You can either 1) swipe your [Lively Visa debit card](https://www.benefitnews.com/news/lively-visa-partner-on-debit-processing-hsa) at the time of purchase, or 2) reimburse yourself later. 

What does it mean to “reimburse” yourself with your Health Savings Account (HSA)? It means paying out-of-pocket for an HSA-qualified medical expense and then using money from your HSA to pay yourself back. This can be done even if you don’t have money in the account the day the expense incurred, and at any time in the future. Whether you reimburse yourself now⁠—or later⁠—has some interesting benefits.

## Paid for a Medical Expense Out-of-Pocket? What’s Next?

As long as the qualifying medical expense was made after the establishment of your HSA, you can use your HSA to pay yourself back for your out-of-pocket expense. And while it isn’t required that you submit receipts to be reimbursed from your HSA, we recommend it in case of an IRS audit. 

### Know What Qualifies as an HSA-Eligible Medical Expense

There are thousands of HSA qualified medical expenses. Expenses are likely pretty obvious if you’re at the doctor’s, having an eye exam, or at a dentist appointment. But what about over-the-counter products like sunscreen, prenatal vitamins, or contact lens cleaning solution? 

Use “[What’s Eligible](https://livelyme.com/whats-eligible/)” to find qualifying medical expenses without the requirement of a doctor’s note, with a prescription, or with a doctor’s letter. Better yet; let Lively’s Expense Scout do the searching for you.

### Expense Scout

Don’t spend your time scanning receipts trying to find your HSA-eligible medical expenses. 

Instead, use Lively’s [Expense Scout](https://livelyme.com/expense-scout/) to scan and alert you of potential HSA-eligible expenses from linked external accounts. Like your personal debit card or credit cards. Expense Scout prompts you to a list of expenses for review. Then you have the option to reject or submit them⁠—with receipt—for reimbursement, now or later.

## Document All Medical Expenses

![document-all-expenses](//images.ctfassets.net/6j8y907dne6i/4FopIwi9mrF1zEqiMZQpxi/aadc96e2bbe2ec9a3e7426a5a4f48b6d/document-all-expenses.jpg)

To justify spending money on a qualified medical expense, you should keep or track your expense receipts. Receipts should be kept for as long as your tax return is open and subject to an audit; usually three years. Or as long as your HSA is open. Whichever is longer.

Some HSA companies (like Lively) offer digital receipt filing so you can document your receipts without having to save piles of receipts. This is helpful if you plan on paying for out-of-pocket expenses and reimbursing yourself “20 years” from now. But, more on that hack in a bit. 

### Records to Keep in Case of an IRS Audit 

It’s best to save a copy of your health insurance carrier’s Explanation of Benefits (EOB) in case the IRS audits you. This documents the expenses for services covered under your High-Deductible Health Plan (HDHP). You should also keep receipts for all products or services you paid for.

In case of an [IRS audit](https://www.irs.gov/forms-pubs/about-publication-969), you need to have records that prove:

- Distributions were to pay or reimburse qualified medical expenses,
- Qualified medical expenses had not been paid or reimbursed from another source, and
- The medical expenses had not been taken as an itemized deduction in any year. 

When you choose to be reimbursed for an eligible medical expense that’s called a __distribution__.

If you take a distribution your HSA provider will send you [Form 1099-SA](https://livelyme.com/what-is-irs-tax-form-1099-sa). You should be prepared to file [Form 8889](https://livelyme.com/irs-tax-form-8889) with your annual taxes. If there’s something that doesn’t match between forms 1099-SA and 8889, resolve it before filing your taxes. Keep reading to learn how HSA distributions are taxed and reported.

## When Can I Reimburse Myself for an Out-of-Pocket Expense?

![when-hsa-reimbursement](//images.ctfassets.net/6j8y907dne6i/2DcikyDJz1nLL4z6MHOCy1/36828f85b62ccab059de8b6a9336d31b/when-hsa-reimbursement.jpg)

You can reimburse yourself __anytime__. 

Today, tomorrow, or 20 years from now. The only rule is that your HSA was established at the time that the expense was incurred (date of service). And that the expense was not reimbursed in any other way. 

This is one of the reasons why knowing the exact date of the establishment of your HSA is important. You cannot be reimbursed for expenses that were incurred prior to that date.

Did you know that you can also reimburse yourself for expenses even if you are no longer eligible to contribute to an HSA? That’s because the use of your funds is not tied to HSA eligibility. Once you add money to your HSA, it’s yours. And it can be used at any time in the future.

## Want More Money in Retirement? Reimburse Yourself Later

One of the major financial benefits of an HSA is that you can choose to reimburse yourself anytime. This gives you the opportunity to save the funds in your account. It also provides the opportunity to increase interest earned or provide more time for invested funds to grow.

Many people choose to pay for medical expenses out-of-pocket and reimburse themselves later. Since there’s no reimbursement deadline, you can choose to reimburse yourself years later. Even during retirement.

This requires you to save your receipts and invoices for reimbursement. In the event that you ever get audited by the IRS, they will ask for proof. If you’re unable to provide those records, you would have to pay regular income tax plus a 20% penalty on your reimbursements.

## How HSA Distributions Are Taxed and Reported

![hsa-distribution-tax](//images.ctfassets.net/6j8y907dne6i/1Qp2iGiBLoBkr48xsxV81z/ad237aa0e2034eae881b12050d5fa8c8/hsa-distribution-tax.jpg)

If you use your HSA to buy a qualified medical expense, you will not have to pay income taxes on those funds. If you use your HSA for something other than a qualified medical expense, that distribution is taxable income. And you can be subject to a 20 percent penalty for early withdrawal. When an HSA account holder reaches the age of 65 or becomes disabled, they are no longer subjected to that 20 percent penalty.

In terms of reporting HSA tax information, the HSA trustee or custodian keeps all reports of distributions. The trustee then shares that information to the account owner through IRS Form 1099-SA. HSA account holders are responsible for reporting their own distributions to the IRS through Tax Form 8889. It’s recommended that HSA owners keep records of all their distributions, in the event, they ever become audited by the IRS.

## Reimbursement in Action

### Real-Life Example: When Your HSA is Low in Funds 

James recently got a new job and has a variety of health plans to choose from. He decides on a high-deductible health plan so that he can take advantage of his employer’s HSA contributions. Upon opening his account, he deposits a dollar to establish his account. 

A few weeks after opening his account, James gets into an accident and sprains his ankle. Since he doesn’t have those funds in his HSA yet, he pays for his treatment out-of-pocket. He saves his receipts with a digital receipt organizer, so he can reimburse himself later.

Fast forward to a year from then. James now has enough money in his HSA to pay himself back for those out-of-pocket expenses. Because he kept such diligent records, he was able to reimburse himself with his HSA.

He reports this information to the IRS using IRS Tax Form 8889. If James did not report his distribution to the IRS correctly, the money he withdrew could receive a 20% tax penalty. Since James saved his receipts, he won’t have to pay this penalty. And he receives the tax-free benefits from using his HSA for qualified medical expenses.

### Real-Life Example: Your Savings Strategy

![hsa-reimbursement-wealth-building](//images.ctfassets.net/6j8y907dne6i/6R7cjd9se6Xrgawi2jo8UB/6d65ef236dfdd131080e9af01ae762b8/hsa-reimbursement-wealth-building.jpg)

Juliet is a smart, money-savvy individual and she wants to get the most out of her HSA when she retires. She enrolls in an HDHP for several years and also maxes out her HSA every year. When she needs to pay for a health-related expense, she pays out-of-pocket. She tracks her health expenses by taking pictures of her receipts and logging them into Lively App to reimburse herself later.

Fast-forward to years from now when Juliet is in retirement. Since she hasn’t withdrawn any of the money in her HSA, she was able to earn more interest with her higher account balance. And even earned more through investing some of her funds. 

Juliet has diligently logged years’ worth of glasses, contacts, prescriptions, and other qualified health-related expenses into her account. Which, when added together totals thousands of dollars. She chooses this opportunity to finally reimburse herself for those expenses with her HSA. And uses those funds to help her travel during retirement.

## Reimbursing Yourself For Out-of-Pocket Medical Expenses with Lively

Have a couple of out-of-pocket expenses that you can use your HSA for? Here’s how you can reimburse yourself through the [Lively app](https://livelyme.com/app/):

1. Access your Lively account through our online portal, iOS, or Android App.
2. Navigate to “Transactions” in the menu or click on “+ Expense.”
3. Choose “Add Expense: For purchases made using your personal fund.”
4. Enter the amount of the medical expense, who the merchant/provider was, and the date you made the purchase or started receiving service.
5. Choose “Get Reimbursed Later” or “Process Immediately.” 
6. Add a receipt by taking a photo or uploading an image.
7. Click the “Submit” button.

This process is quick and easy, and you’ll have those funds in your account within 2-3 business days. 

We suggest taking a picture of all of the receipts you have for your healthcare expenses so you can keep them attached to your transactions within your Lively account. Having your information ready to go makes using your HSA simple.






hsa-reimbursement-rules

Learn about HSA reimbursement rules: How to efficiently track expenses in case of an IRS audit, how distributions are taxed, and how to determine whether to delay reimbursements as part of a wealth-building and retirement strategy.