Flexible spending arrangements (FSAs) can help you spend less on health care, but only if you use yours correctly — by spending all the money in it before a year-end deadline.

FSAs are tax-advantaged accounts that can be used for medical expenses only; they’re sometimes also called flexible spending accounts. They’re different from health savings accounts, or HSAs, in that the money can be spent only in the calendar year it’s contributed.

Can I Get a Refund on my FSA Money Back?
Can I Reimburse Myself From FSA?
What Happens to Leftover FSA Money?
What is The Difference Between HSA and FSA?
How do I Pay Myself Back From my HSA?
How Does FSA Reimbursement Work?
How Far Back Can I Reimburse Myself From HSA?
What Happens to Unused Money in a HSA?
What Happens if You Have an HSA and FSA?
Why do Companies Choose FSA Over HSA?
How do You Use HSA Money?
Can You Cash Out HSA?
How Long Does FSA Reimbursement Take?
What Documentation is Needed For FSA Reimbursement?
Does HSA Money Expire?
What Happens to my HSA if I Switch to a PPO?
Can You Have an HSA and FSA in The Same Household?
How Much Can I Contribute to HSA 2022?

Can I Get a Refund on my FSA Money Back?

FSA funds are use it or lose it, and any unused money left over at the end of the year is no longer yours. Unused funds go to your employer, who can split it among employees in the FSA plan or use it to offset the costs of administering benefits.

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Under no circumstances can your boss give the money back to you directly, according to IRS rules. Once the plan year is over, that money is gone. So if you have any left toward the end of the year, you’ll need to figure out when and how to spend it. You have more options than you might expect.

Can I Reimburse Myself From FSA?

While most of your legitimate medical expenses can be paid using an HSA or FSA, there are also some expenses that don’t qualify for the tax advantage that these accounts give you. For instance, non-prescription medications and supplements aren’t considered qualified expenses.

Neither are insurance premiums, weight loss programs or health club dues. For a list of qualified versus non-qualified medical expenses, check out IRS Publication 502.

You can reimburse yourself from an HSA or FSA. However, you need to make sure you keep track of your medical expenses and ensure they’re all qualified before you reimburse yourself to avoid penalties and taxes.

And, of course, don’t use a credit card to pay medical expenses unless you can pay it off before accruing interest. There are much cheaper financing options available, and any earned rewards won’t outweigh interest payments.

What Happens to Leftover FSA Money?

Flexible Spending Accounts are “use it or lose it,” so you must spend whatever amount you put into it before your plan year expires. Plans have plan years in which monies have to be used. You should check important deadlines with the plan administrator to ensure you don’t lose your tax-free money.

Some employers offer an additional grace period of up to two and a half months after the end of the plan year to spend your funds, but that depends on the plan provided by your company.

Unused FSA money returns to your employer. The funds can be used towards offsetting administrative costs incurred during the plan year, employers can also reduce annual premiums in the next FSA year, or funds must be equally distributed to employees who enroll in an FSA for the next year.

What is The Difference Between HSA and FSA?

Although FSAs and HSAs both allow people to use pretax income for eligible medical expenses, there are considerable differences between the two account types. These include the qualifications, contributions limits, rules for rollovers and changing contribution amounts, and withdrawal penalties. We have compiled the main differences in the chart below.

	Flexible Spending Account	Health Savings Account
Qualifications	Must be set up by employer.	Requires a high-deductible health plan (HDHP). Cannot be eligible for Medicare. Cannot be claimed as a dependent on another person’s tax return.
Annual Contribution Limits	Up to $2,650 individual. Up to $5,300 per household.	Up to $3,450 individual.* Up to $6,900 per household.
Account Ownership	Owned by employer and lost with job change, unless eligible for continuation through COBRA.	Owned by individual and carries over with employment changes.
Rollover Rules	Employer chooses whether: Funds expire at the end of the year. Employees get a grace period of 2 1/2 months to use funds. Employees can roll over $500 into next year’s FSA.	Unused funds roll over every year.
When You Can Change Contributions	At open enrollment. If your family situation changes. If you change your plan or employer.	Any time, as long as you don’t go over the contribution limits.
Penalties for Withdrawing Funds	May have to submit expenses to be reimbursed by FSA. Depending on employer, employees may not have access to funds for nonmedical expenses.	Savings can be taken out of the account tax-free after age 65. If used before 65, for nonmedical expenses, it is subject to a 20% penalty and must be declared on income tax form.

Overall, the higher limits and contribution rollover of the health savings account make it a better choice if you can qualify. HSAs are more flexible than FSAs, allowing you to save for potential medical expenses and accumulate money over time.

On the other hand, unless your employer allows you to roll over $500 from your FSA each year, your balance won’t build up over time. Depending on your employer’s preference, any amount you put into an FSA will be lost if not used by the end of the year.

Most of the time, you won’t have to choose between an FSA and HSA because the decision will be dependent on your work situation and your insurance deductible. To decide on a plan, check whether your health insurance is eligible for an HSA. If it’s not, find out whether your employer offers an FSA plan.

How do I Pay Myself Back From my HSA?

You always have the option to choose when to use your HSA dollars. Many HSA participants elect to pay smaller expenses with after-tax dollars, allowing their balances to grow for the future.

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.

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:

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.

How Does FSA Reimbursement Work?

A health flexible spending account (FSA) is part of your benefits package. This plan lets you use pre-tax dollars to pay for eligible health care expenses for you, your spouse, and your eligible dependents.

Here’s how an FSA works. Money is set aside from your paycheck before taxes are taken out. You can then use your pre-tax FSA dollars to pay for eligible health care expenses throughout the plan year. You save money on expenses you’re already paying for, like doctors’ office visits, prescription drugs, and much more.

Health FSAs benefit everyone – single individuals, families, and soon-to-be retirees. Setting aside pre-tax dollars means you pay fewer taxes and increase your take-home pay by your tax savings. You save money on eligible expenses that you are paying for out of your pocket. The amount you save depends on your tax bracket.

How Far Back Can I Reimburse Myself From HSA?

There are lots of reasons to love your HSA, and here’s one more — you can reimburse yourself for expenses years after they occurred. According to the IRS, there is no time limit for paying yourself back, but there are some rules (we’ll explain more below). You can’t reimburse yourself for expenses incurred before you had an HSA. They’re also expecting you to keep meticulous records.

As you learn there’s no reimbursement deadline, you may think of paying for medical expenses out-of-pocket, and start stockpiling receipts. Then, you can cash them in many years later by reimbursing yourself. Well, you’re not the first one to consider it. Plenty of folks have been doing this for years.

What appears to be the “ultimate hack” requires an extreme level of discipline. Staying on top of receipts for many years isn’t easy. And not everyone is equipped to handle that level of record-keeping.

If you decide to reimburse yourself many years later, and the IRS sniffs around, they will ask for proof. Audits do happen. If you can’t provide detailed records, you could get stuck paying income tax plus a 20% penalty on your years of withdrawals.

What Happens to Unused Money in a HSA?

To contribute to an HSA you must be enrolled in a qualified high-deductible health plan (HDHP) and your contributions are limited annually. The funds can even be invested, making it a great addition to your retirement portfolio.

HSA money is yours to keep. Unlike a flexible spending account (FSA), unused money in your HSA isn’t forfeited at the end of the year; it continues to grow, tax-deferred. What happens if my employment is terminated? HSAs are portable and move with you if you change employment. Your HSA belongs to you, not your employer, just like your personal checking account.

What Happens if You Have an HSA and FSA?

Saving, investing and retirement planning. These are just three of the perks you’ll experience when you participate in a health savings account (HSA). To be eligible for an HSA, there are only a few requirements, with two of the big ones being that you must be covered by a high-deductible health plan (HDHP), and you can’t participate in both an HSA and a medical flexible spending account (medical FSA).

However, just because you participate in an HSA doesn’t mean you need to miss out on the savings potential of an FSA. Limited FSAs and combination FSAs are eligible to be paired with HDHPs and HSAs.

1. Save more money

An HSA is a smart tool for saving on eligible medical, dental and vision expenses. However, the IRS sets contribution limits on how much money you can set aside into these accounts. By pairing your HSA with a limited FSA or combination FSA, you put aside even more pre-tax dollars beyond what just an HSA allows. Eligible expenses for each of the two FSAs are:

• A limited FSA covers dental, vision and preventive care expenses.
• A combination FSA covers the same expenses as a limited FSA. Once the IRS deductible is met, it converts into a full medical FSA and still remains eligible to be paired with an HDHP and HSA.

2. Fast access to funds

One of the differences between an HSA and an FSA is when funds are available. With an HSA, you have access to funds as they are contributed. With an FSA, all of your funds are available on Day 1 of the plan year. By pairing an HSA with an FSA, you can access your FSA funds right away, which will give you time to build up your HSA balance.

3. Use HSA for savings and FSA for spending

It’s all in the name: An HSA is a “savings” account. While you can save on qualifying purchases with an HSA, it is at its best when you’re able to use it as a savings vehicle. That’s because (unlike an FSA) all HSA funds carry over from one year to the next. And you can invest your HSA funds, which is why the account rivals a 401(k) or IRA for retirement planning.

By choosing to participate in both an HSA and a limited FSA or combination FSA, you’re able to apply any dental, vision and preventive care expenses to your FSA, your HSA funds will have the ability to grow (both as you contribute them and, if you choose, through investment). That helps you harness the long-term power of an HSA.

Why do Companies Choose FSA Over HSA?

An HSA account provides a bit more flexibility, in that your funds can roll over from year to year, your account is portable from job to job and you can invest your money, while it grows tax-free. But it is important to take a good look at both accounts to determine which you may qualify for and which works best for your medical needs.

Both a healthcare FSA and an HSA can help you pay out-of-pocket qualified medical expenses. Because your contributions are made on a pretax basis, a healthcare FSA directly reduces your taxable income, as well as the payroll taxes you pay.

When you have a high deductible medical plan at work, an HSA can be critical for filling in the expense gap that comes along with it. The funds in an HSA carry over from year to year, are yours if you leave your employer and can be invested.

How do You Use HSA Money?

You can pay for IRS-qualified medical expenses with funds from your HSA by using your debit card. You can also pay for part of all of your IRS-qualified medical expenses out-of-pocket and reimburse yourself later with HSA funds.

If you pay for an ineligible expense, you must report it in your annual income tax filing and pay the related income taxes, plus a tax penalty. (After age 65, the penalty does not apply.)

You can pay or reimburse yourself for any eligible medical expenses incurred after your HSA was established.

Can You Cash Out HSA?

Yes, you can withdraw funds from your HSA at any time. But please keep in mind that if you use your HSA funds for any reason other than to pay for a qualified medical expense, those funds will be taxed as ordinary income, and the IRS will impose a 20% penalty.

After you reach age 65 or if you become disabled, you can withdraw HSA funds without penalty but the amounts withdrawn will be taxable as ordinary income.

You can submit a withdrawal request form to receive funds (cash) from your HSA. If the cash is used to pay for ineligible purchases, it must be reported when you’re filing your taxes. Once it’s reported, it’s subject to an income tax and treated as though it had never been in your tax-free HSA.

Example: You took a withdrawal of $100 out of your HSA to pay for new shoes. Your tax rate is 25%. When you report that $100, it will be taxed at 25% and you will only get $75 on your tax return.

However, there is no tax penalty to make withdrawals to cover qualified medical expenses. In other words, if you had spent the money on an eligible purchase (like orthotic inserts) your refund would have included the full $100.

How Long Does FSA Reimbursement Take?

Most claims are processed within one to two business days after they are received and verified. Payments are sent shortly thereafter via direct deposit.

You can update your direct deposit information any time through your online account. Please check with your bank if you have questions regarding direct deposits.

You will be reimbursed for eligible health care claims incurred up to your annual allotment (plus any carryover, if applicable) – as long as your employment has been confirmed with your employing agency or its payroll office.

However, dependent care expenses will only be paid up to the amount in your account at the time the claim is processed. If a dependent care claim cannot be paid in full, as soon as your next allotment (FSA contribution) is received, the balance will be issued to you up to the amount that’s in your account. Depending on your allotments and your dependent care expenses, it may take several pay periods before a DCFSA claim can be paid in full.

Reimbursements are based on the date that the service was provided and not when you actually paid for the service.

If you participate in paperless reimbursement, your FEHB plan or FEDVIP plan automatically forwards your claims to FSAFEDS. It may take up to 10 to 12 business days from the time your FEHB plan submits your claim until your funds are deposited into your account. The payment schedule for retail and mail-order pharmacy vendors is generally longer than what you may experience for medical, dental and vision claims. The longer payment schedule means your pharmacy claims will most likely take even longer to be reimbursed by FSAFEDS.

What Documentation is Needed For FSA Reimbursement?

All requests for reimbursement must be accompanied by the appropriate
supporting documentation, as outlined below. Failure to submit acceptable
documentation will lead to a delay in the reimbursement process.

Health Care FSA

When submitting a claim for reimbursement from a Health Care Flexible Spending Account or Health Reimbursement Account, you must provide documentation of the qualified expense.

An acceptable health care FSA claim should include:

• Appropriate claim form. (Separate claim form for each individual)
• Signed
• Dated
• List Expenses
• List Dates of Service
• Identify whose expenses (participant, dependent)
• Amount of Claim
• Appropriate receipts (see below)

Supporting Documentation

Supporting receipts, EOBs or billing statements must be submitted with the completed and signed claim form. Supporting documentation must contain all of the following elements to be considered an adequate receipt under IRS rules. Credit card receipts and/or cancelled checks are not adequate documentation.

Medical Service – (An itemized statement or an EOB from the insurance company or health care provider that contains the following)

• Patient Name
• Provider Name
• Date of Service
• Description of Service (or procedure code)
• Amount Paid

Medical Item

• Merchant Name
• Date of Purchase
• Description of Item
• Amount Paid 

Prescription

• Name of Patient
• Name of Pharmacy
• Date (fill date)
• Prescription Number
• Amount Paid 

OTC Drug or Medicine

• Merchant Name
• Date of Purchase
• Description of Item (specific product name – “cold medicine” or “allergy medicine” not sufficient)
• Amount Paid

Dual Purpose Item

If the item has both a medical and a non-medical purpose (a massage, nasal strips, vitamins, or compression socks, for example), a Letter of Medical Necessity from your doctor must be submitted confirming that the item is for medical care. A new Letter of Medical Necessity must be provided each Plan Year. BAS has a form that your doctor can fill out to satisfy the Letter of Medical Necessity Requirements.

To be acceptable, a Letter of Medical Necessity must include:

• Patient Name
• Doctor Name
• Date of Issue
• Diagnosis
• Service or Supply Needed
• Statement or support that service or supply is medically necessary to treat diagnosis
• Length of Service (if applicable)

Dependent Day Care FSA

When submitting a claim for reimbursement from the Dependent Day Care Flexible Spending Account, you must submit a completed BAS Dependent Day Care FSA Claim Form, along with appropriate receipts showing the expense was incurred for an eligible dependent.

An acceptable Dependent Day Care FSA claim should include:

• Appropriate claim form. Separate claim form for each individual.
• Signed
• Dated
• Identify Qualified Dependent
• Provider’s Signature and Date (or provide receipt)
• Taxpayer Identification Number (or SSN) (or statement that you tried to get the TIN/SSN but couldn’t)
• Description of Services
• Amount of Claim
• Appropriate supporting documentation (see below)

Supporting Documentation

If the Provider does not sign and date the completed form attesting to each expense, supporting bills/receipts must be submitted with the completed claim form. A bill/receipt must contain all of the following elements to be considered adequate under IRS rules. Credit card receipts and/or cancelled checks are not enough.

• Name of Qualifying Dependent
• Name and Address of Provider
• Date of Service
• Description of Service (if not evident from name on statement)
• Provider’s Taxpayer Identification Number/SSN (if not on claim form or if statement not provided that tried to obtain the TIN/SSN)

Does HSA Money Expire?

All of the money in an HSA (including any contributions deposited by an employer) is owned by the employee even if they leave their job, lose their qualifying coverage or retire. The money in an HSA never expires. Unlike flexible spending accounts (FSAs), all remaining HSA funds roll over each year.

Because interest and investment income earned on an HSA is not taxed, HSAs are great retirement savings accounts. After age 65 employees can spend HSA money on non-medical items without paying a penalty. Non-medical withdrawals after age 65 are taxed as income just like withdrawals from a 401(K) or IRA.

What Happens to my HSA if I Switch to a PPO?

You own your account, so you keep your HSA, even if you change health insurance plans or jobs. We can continue to administer your HSA account if you choose. If you no longer are enrolled in
a high-deductible health plan, you are not eligible to make new contributions to your HSA, but you can continue to withdraw funds for qualified expenses.

Can You Have an HSA and FSA in The Same Household?

Unfortunately, the IRS has deemed that FSA coverage extends tax benefits to family members as well. This is because an FSA holder can deduct medical expenses that occur for themselves, their spouse, and their dependents.

This also applies inversely for HSA’s since they can deduct expenses for their family. This combination of two tax advantaged programs is a no-no as it violates the “No Other Health Coverage” clause of the HSA.

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When it comes to contributing to the HSA, your husband can directly contribute to his HSA instead of taking salary deductions. This will be done with post-tax dollars, so he just writes a check to the Health Savings Account. Come tax time, when you file Form 8889, it will reduce your taxable income by the contribution amount, making those contributions tax free.

However, do note that there is one disadvantage of contributing directly to the HSA, which is additional Social Security / Medicare taxes are paid. If you withhold the contributions from your paycheck, you never pay those extra taxes. If you contribute the post-tax money, you will have paid those taxes, but only get back the federal income tax you paid. It might not matter.

How Much Can I Contribute to HSA 2022?

The IRS announced an increase in health savings account (HSA) contribution limits for the tax year.  Here is what you need to know about the HSA contribution limits for the calendar year:

• An individual with coverage under a qualifying high-deductible health plan (deductible not less than $1,400) can contribute up to $3,600 — up $50 from 2020 — for the year to their HSA. The maximum out-of-pocket has been capped at $7,000.
• An individual with family coverage under a qualifying high-deductible health plan (deductible not less than $2,800) can contribute up to $7,200 — up $100 from 2020 — for the year. The maximum out-of-pocket has been capped at $14,000.

And remember, if you are age 55 or older, you can contribute an additional catch-up contribution of $1,000 per year. If your spouse is also 55 or older, he or she may establish a separate HSA and make a “catch-up” contribution to that account.*