How to Use Your HSA or FSA for Medical Costs

What an HSA and FSA actually do

An HSA (Health Savings Account) and an FSA (Flexible Spending Account) are both ways to set aside pre-tax money from your paycheck to pay for medical costs. The money comes out before taxes are calculated, which means you pay less in federal income tax and Social Security tax. You then use that money to pay for doctor visits, prescriptions, dental work, vision care, and other medical expenses.

The main difference: an HSA stays with you even if you change jobs, and you can carry unused money forward year to year. An FSA is tied to your employer and you typically lose any money you don't spend by the end of the year (though some plans allow a small carryover). An HSA also requires you to be enrolled in a high-deductible health plan; an FSA has no such requirement.

Both accounts reduce your taxable income, which is the real financial benefit. If you're in the 22% tax bracket and set aside $2,500 in an FSA, you save roughly $550 in taxes that year.

Key Takeaways

• Money in an HSA or FSA comes from your paycheck before taxes, lowering the income tax and Social Security tax you owe.
• An HSA stays with you if you change jobs and lets you carry money forward indefinitely; an FSA is employer-tied and you usually lose unspent money at year-end.
• You can use either account to pay for doctor visits, prescriptions, dental, vision, hearing aids, and many other medical costs — not just insurance premiums.
• You'll need a debit card or receipts to prove expenses are medical; keeping records matters because the IRS can audit these accounts.

How much to set aside each year

The amount you contribute is entirely up to you, within IRS limits. For 2024, you can put up to $4,150 into an FSA or up to $4,000 into an HSA (if you have individual coverage) or $8,300 into an HSA (if you have family coverage). These limits change yearly.

The real question is: how much will you actually spend on medical costs this year? Think about prescriptions you refill regularly, dental cleanings and any planned dental work, vision exams and glasses or contacts, therapy or counseling sessions, and any procedures you know are coming. Add in a buffer for unexpected doctor visits. If you're unsure, start conservative — it's better to contribute less and not lose money than to overestimate and forfeit the difference.

If you have an FSA, be especially careful about overestimating. Many employers offer a "grace period" (usually two to three months into the next year) to spend remaining FSA money, or they allow you to carry over a small amount (often $570). Check your plan documents to see what applies to you. If neither applies and you don't spend the money, it's gone.

What medical costs you can actually pay for

Both HSAs and FSAs cover far more than most people realize. You can use the money for copays, coinsurance, deductibles, and prescriptions. You can also pay for dental cleanings and fillings, vision exams and glasses, hearing aids, mental health counseling, physical therapy, and over-the-counter medications (including pain relievers, allergy medicine, and cold medicine — though you'll need a doctor's note for some).

Less obvious expenses that may have access to: acupuncture, chiropractic care, certain medical equipment like crutches or blood pressure monitors, insulin and diabetes supplies, and even some medical transportation costs. The IRS publishes a full list, but the general rule is that the cost must be for diagnosis, treatment, or prevention of a medical condition.

What doesn't count: cosmetic procedures, gym memberships (even if your doctor recommends exercise), vitamins and supplements (unless prescribed for a specific condition), and most over-the-counter items without a doctor's prescription. When in doubt, ask your plan administrator before you spend the money.

How to actually use the money

Most HSAs and FSAs come with a debit card that you can use directly at pharmacies, doctor's offices, and other medical providers. You swipe it like a regular debit card, and the cost comes out of your account. This is the simplest route and requires no paperwork on your end.

If you don't have a debit card or the provider won't accept it, you can pay out of pocket and then submit a claim for reimbursement. You'll need to send your receipt or an explanation of benefits (EOB) from your insurance to your plan administrator, along with a claim form. They'll review it and send you a check or direct deposit. This process usually takes one to three weeks.

Keep all receipts and EOBs for at least three years. The IRS can audit HSA and FSA accounts, and you'll need proof that the money went to legitimate medical expenses. If you can't document a withdrawal, the IRS may treat it as taxable income and charge you a penalty.

What happens to money you don't spend

With an HSA, unused money rolls over automatically. You can let it sit in the account indefinitely, earning interest or investment returns if your plan offers that option. Some people treat an HSA like a retirement account and invest the money, using it only for medical expenses in later years. This is legal and actually encouraged by financial planners — an HSA is the only account that lets you save pre-tax money specifically for healthcare.

With an FSA, the rules are stricter. If your plan doesn't offer a grace period or carryover, any money left at the end of the year goes back to your employer. You lose it. This is why FSAs require more careful planning. If you're not confident about your medical spending, contribute less rather than more.

Changing your contribution mid-year

You can usually only change your HSA or FSA contribution during your employer's open enrollment period, which is typically once a year in the fall. However, you can make changes outside that window if you have a "may have access to life event" — getting married, having a baby, losing other health coverage, or a significant change in your spouse's benefits.

If you realize mid-year that you've contributed too much to an FSA and won't spend it, contact your plan administrator to see if you can reduce your contribution for the rest of the year. Some plans allow this; others don't. With an HSA, you can adjust your contribution at any time since it's your own account.

HSA vs. FSA: which one is right for you

Choose an HSA if you're enrolled in a high-deductible health plan and you want money to carry over year to year. An HSA makes sense if you're generally healthy and don't expect large medical expenses this year — you can let the money accumulate and use it later, or even in retirement.

Choose an FSA if your employer offers it and you have predictable medical expenses each year (regular prescriptions, ongoing therapy, annual dental work). An FSA is also useful if you have a lower deductible and expect to hit your out-of-pocket maximum anyway — the tax savings are real even if you spend the money quickly.

Some employers offer both. If yours does, you can have an HSA and an FSA at the same time, though there are rules about what each can cover. Talk to your benefits administrator about how they coordinate.

Frequently Asked Questions

Can I use my HSA or FSA to pay for my insurance premiums?

No, not for regular health insurance premiums. However, you can use HSA money to pay for Medicare premiums, COBRA continuation coverage, and long-term care insurance. FSA money cannot be used for any insurance premiums. Check your plan documents, as some employers have special arrangements.

What if I change jobs — do I lose my HSA or FSA?

Your HSA stays with you and moves to a new bank or provider of your choice. Your FSA is tied to your employer, so you lose access to it when you leave. However, you can usually submit claims for expenses you incurred while employed for up to 60 or 90 days after you leave, depending on your plan. Ask your former employer's benefits department for the deadline.

Can I use my HSA or FSA for my spouse or children?

Yes, if they're on your health insurance plan. You can use the money to pay for their medical expenses, dental work, and prescriptions. You cannot use it for a spouse or child who is not covered by your plan.

What happens if I withdraw money that isn't actually for medical expenses?

If you're under 65, you'll owe income tax on the amount plus a 20% penalty (for HSA) or 20-25% penalty (for FSA, depending on your plan). If you're 65 or older, the penalty goes away but you still owe income tax. This is why keeping receipts and being honest about what you spend on matters.

Can I invest the money in my HSA?

Yes, many HSA providers let you invest unused money in stocks, bonds, or mutual funds. You'll need a minimum balance (often $1,000 or $2,000) before you can invest. FSA money typically cannot be invested — it sits in a cash account.