Many companies offer health savings accounts (HSAs) and flexible spending accounts (FSAs) as benefits to help employees cover qualified medical expenses. These accounts have several restrictions, limiting what they cover and how much you can contribute.
A lifestyle spending account (LSA) is a more versatile alternative to HSAs and FSAs, opening up how employees can spend and save. As the name implies, these accounts focus on spending categories that promote a healthier lifestyle.
What Does an LSA Cover?
Unlike other savings accounts, you don't have to follow IRS guidelines when determining how to spend your LSA. What categories it covers depends entirely on your employer.
Employers decide what counts as an eligible expense. As a result, companies can get creative when setting up an LSA to create a compelling benefit that attracts top talent.
Typically, these accounts emphasize health and wellness to promote a better workplace culture. While eligible expenses can vary, they often include categories like:
• Gym memberships
• Groceries
• Child care
• Life Coaching
• Therapy
• Continued education or professional development
• Vitamins and supplements
• Athletic wear
• Sports and fitness gear
What About Taxes?
With an HSA or FSA, you get several tax benefits. However, taxes work differently with an LSA. Because employers decide what counts as an eligible expense, these accounts don't have tax advantages. They may increase your taxable income.
When an employer reimburses you for an eligible expense, you must report that amount as income. For example, you might have an LSA with a $1,000 annual limit. If you spend $750 of your LSA on eligible expenses, you must report that $750 when you prepare your taxes.
Despite the lack of tax benefits, LSAs are still worth getting. For employers, they help shape company culture, promote better health among the workforce and create an attractive compensation package that can bring in high-quality job candidates. For employers, an LSA provides greater flexibility.
Many people with an LSA will use it to pay for goods and services they normally wouldn't try, creating new ways to achieve better overall health.
Author Resource:-
Daniel Stewart has been helping people with their money management and personal finance with over 15 years’ experience in business finance. You can find his thoughts at health investment blog.