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HSA Taxes, FSA Taxes & How They Work in 2023-2024

If you have medical bills to pay, you might as well at least get a tax break with an FSA or an HSA.
Sabrina Parys
Tina Orem
By Tina Orem and  Sabrina Parys 
Updated
Edited by Arielle O'Shea

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Medical expenses can take a big bite out of your wallet. But two special accounts — the health savings account (HSA) and the health flexible spending account (FSA) — can be good remedies for both your doctor and tax bills.

As with all things tax, there are exceptions and special rules for certain situations. You can find more in IRS Publication 969

. If you have additional questions, talk with your company's human resources or benefits department.

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What is a health savings account (HSA)?

A health savings account (HSA) is an account you can use to pay a variety of medical costs. An HSA is only available to people who have a high-deductible health insurance plan. The contributions to an HSA are tax-deductible, and the account's earnings (if invested) are tax-free, as are withdrawals for eligible medical expenses.

The maximum amount you can contribute to your HSA also depends on inflation, as well as the type of high-deductible insurance policy you have.

2023 HSA contribution limits

In 2023, people with an eligible individual high-deductible health plan could contribute up to $3,850 to an HSA. Family contributions were capped at $7,750.

Per the IRS, high-deductible health plans for 2023 must have an annual deductible of at least $1,500 for self coverage and $3,000 for family coverage to be considered eligible. Out-of-pocket expenses could not exceed $7,500 (self) and $15,000 (family)

Internal Revenue Service. Rev. Proc. 2022-24. Accessed May 17, 2023.
.

Self

Family

Catch-up contribution (ages 55+)

$3,850.

$7,750.

$1,000.

2024 HSA contribution limits

Due to high inflation, the IRS raised the HSA contribution amounts significantly for the 2024 calendar year. Individuals can contribute up to $4,150 in 2024, up $300 from 2023. The family contribution amount for 2024 rose to $8,300, a $550 increase compared with 2023.

Per the IRS, a high-deductible health plan for the 2024 tax year must have an annual deductible of at least $1,600 for self coverage and $3,200 for family coverage. Out-of-pocket expenses cannot exceed $8,050 (self) or $16,100 (family)

Internal Revenue Service. Rev. Proc. 2023-23. Accessed May 17, 2023.
.

Self

Family

Catch-up contribution (ages 55+)

$4,150.

$8,300.

$1,000.

What is a flexible spending account (FSA)?

A health flexible spending account (FSA) is a workplace account you can use to pay for certain medical costs that come out of your own pocket, such as insurance copays, prescriptions and other items needed to meet your health policy's deductible. You contribute to the account as a payroll deduction from your salary, and in return the IRS agrees not to tax that portion of your salary.

Note: Some employers also offer dependent care flexible spending accounts (DCFSAs), which are different from health FSAs. DCFSAs can be used to help cover the cost of daycare, preschool and elder care.

FSA contribution limits 2023 and 2024

The IRS establishes the maximum FSA contribution limit each year based on inflation. In 2023, the FSA contribution limit was $3,050, or roughly $254 a month. In 2024, the FSA contribution limit is $3,200, or $266 a month.

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How do HSA and FSA contributions work?

HSA contributions

  • If your health savings account is based on a high-deductible health plan you get through work, your employer might set up payroll deductions on your account, meaning the money will go into your health savings account tax-free.

  • If you make HSA contributions directly, you may be able to claim a tax deduction for that amount when you file your tax return. You don't have to itemize to claim the HSA deduction.

  • If you're looking for a last-minute way to cut your tax bill, note this: You have until the annual tax-filing deadline (April 15, 2024) to put money into an HSA for the prior tax year.

FSA contributions

  • Once you set up your flexible savings account at work, the contributions automatically come out of your paycheck and go into your account each pay period.

  • Good news: The money is contributed before tax, so your payroll tax bill should be a bit smaller.

How do I access the money in my FSA or HSA account?

  • With an FSA, typically you either use a debit card tied to the account, or you pay out of pocket and then submit receipts to the FSA administrator so you can get reimbursed. Using an FSA debit card is usually easier, but remember that you may be asked to provide receipts to prove your purchases were eligible medical expenses.

  • With an HSA, you’ll likely receive a debit card linked to your HSA account. Along with other annual tax forms, your HSA manager will issue a Form 1099-SA showing distributions from the account. Keep receipts and documentation of what you spent the money on, in case the IRS questions your tax deduction.

What if I don't use all the money?

Health savings accounts (HSAs)

  • HSA money is yours — there are no deadlines to withdraw funds, even if you no longer have the same high-deductible health plan. You can even invest your HSA money in mutual funds or other securities, and the money can continue to grow tax-deferred and be used tax-free to pay for qualifying medical expenses at any time.

  • Use HSA money for medical reasons, though. If you're under 65 and use the funds for other purposes, that money becomes taxable income, and you could face an additional 20% tax on the nonmedical use of HSA money.

  • Once you turn 65, you can use HSA money for anything, but you'll owe tax on withdrawals that aren't used to pay medical expenses.

Flexible spending accounts (FSAs)

The major drawback of an FSA is that it is a use-or-lose plan. If you end up having a healthy year and have money left in your FSA at the end of the benefits period, your employer gets the excess money. Some things to note:

  • Rollovers: Some workplaces also allow employees to roll over a portion of the unused funds into next year’s account. The IRS limits FSA rollovers at $610 for 2023 and $640 in 2024.

  • Grace period: Some workplaces also allow a few months’ grace period to spend FSA funds from the previous year, but they are not required to do so. Grace periods typically go to mid-March.

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