According to the Internal Revenue Service (IRS), no permission or authorization to set up either an FSA or HSA account is required. Both accounts are intended to help provide you with financial assistance regarding medical care costs. An FSA (flexible spending account) is set up by your employer. An HSA (health savings account) is held by an independent trustee. Both have IRS-regulated rules that need to be followed.
Health Care Coverage
There are certain eligibility rules you must meet in order to participate in either an FSA or HSA account. According to the IRS, there are no requirements or rules that you be “covered under any other health care plans” in order to participate in an FSA. If you are a key employee of the firm, however, you may face stricter limitations on participating. Or, if you are highly compensated by the firm, you may also face special limitations.
As far as participation in an HSA account is concerned, you must be enrolled in what is termed an HDHP (Higher Deductible Health Plan) that has a “higher annual deductible than typical health plans” in order to be eligible.
Under an FSA account, you will be disqualified for eligibility if you are self-employed in any capacity. You must be an employee of the firm. You can be self-employed and be considered eligible for an HSA account.
Health Care Benefits
There are no stipulations on the types of additional health insurance benefits you are allowed while participating in an FSA account, according to the IRS. However, if you are involved in an HSA account, you can receive additional health care benefits only in certain situations. These situations include a fixed daily hospitalization amount, a specific illness or disease, tort liabilities and liabilities you incur that fall under applicable workers’ compensation laws.
According to the IRS, in order to be eligible for participation in an HSA account, you cannot be receiving Medicare benefits. There is no such rule in place for participating in an FSA program, since it is an employer-related plan. (Individuals receiving Medicare are usually of retirement age.)
Deductible Medicare Expenses
Under both an FSA and HSA plan, the rules and definition of what qualifies as medical expenses are the same. These expenses are outlined in IRS Publication 502 (Medical and Dental Expenses). You cannot deduct qualified medical expenses as an itemized deduction on Schedule A (Form 1040) that are equal to the distribution you receive from the FSA. Some allowable expenses include weight-loss programs, making your home handicapped accessible, and special foods. Be certain you have written documentation, states the IRS.
Both an FSA and an HSA account allow for prescription drug coverage. The IRS states, however, that you need to meet your minimum annual deductible amount under your HSA account before you can receive the prescription coverage benefits. An FSA account has no such rule in effect.
Originally published by Livestrong – Read More