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What is the difference between an FSA, HRA, and HSA?

Did you sign up for an FSA, only later to find out it is an HSA? Or maybe It’s actually an HRA?

These three-letter acronyms understandably get mixed up all the time.

We wanted to highlight the differences between the FSA, HSA, and HRA offered by our Benefits Administration department.

 

See below for our client cheat sheet to help keep track of what these acronyms stand for and more importantly, what they mean for you.

 

FSA – Flexible Spending Account

  • Employees can contribute pre-tax dollars into this account
  • Employers can also contribute non-taxable funds to this account
  • Account “owner” is the employer
    • The employee cannot take this account with them if they leave the company
  • Use or lose account
    • If an employee does not use all the funds during the plan year (or leaves the company), they lose the funds they have contributed (unless they have the rollover option)
  • There are three types of FSA accounts
  • Medical FSA
    • Used for eligible medical, dental, and vision expenses
  • Limited Purpose FSA
    • Used for dental and vision expenses only – usually paired with a Health Savings Account (see below)
  • Dependent Care FSA
    • Used for dependent children’s childcare (age 13 or under) or a dependent’s caregiver

 

HSA – Health Savings Account

  • Paired with a high-deductible health plan
  • Employees can contribute pre-tax dollars into this account
  • Employers can also contribute non-taxable funds to this plan
  • Account “owner” is the employee
    • The account follows the employee if they leave the company
  • The funds in the account roll-over every year
    • This is not a use-or-lose plan
  • The account is also a savings/retirement plan
    • It accrues interest
    • Funds can be invested
    • Once the account owner turns 65, they have access to the funds, similar to that of a 401K account
  • Cannot be paired with a Medical FSA
    • The IRS does not allow employees to place pre-tax funds into both a Medical FSA and an HSA, however an HSA account can be paired with a “limited purpose” FSA plan.

 

HRA – Health Reimbursement Arrangement

  • Employer designs the plan
    • Employer determines what items the HRA can be used to pay for
  • Account “owner” is the employer
    • Employees cannot use the account once they leave the company
  • Two of the more common types of accounts:
  • Integrated HRA
    • Usually linked with a health plan
  • QSHRA- Qualified small employer HRA for companies with under 50 full-time-equivalent employees.
    • Cannot offer a group health plan if offering a QSEHRA
    • Employer determines the annual maximums- up to $5,250 per employee or $10,600 per family.

 

Learn more about how Payroll Systems can seamlessly integrate benefits into its payroll service to help you empower your workforce.

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This article provides general information and shouldn’t be construed as legal or HR advice. Since employment laws may change over time and can vary by location and industry, please consult a lawyer or HR expert for advice specific to your business. You can also contact Payroll Systems to inquire about our HR support services.