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    Spending Accounts

    Overview

    Tax-Advantaged Accounts, such as Health Reimbursement Arrangements (HRA), Flexible Spending Accounts (FSA), Health Savings Accounts (HSA), Premium Only Plans (POP), and Dependent Care Assistance (DCA), offer financial benefits by allowing tax-free contributions to be used for eligible expenses. These accounts can be an important part of a well-rounded benefits package, and understanding their operation and benefits can help businesses and employees maximize their value.

    Types of Tax-Advantaged Accounts

    We will delve into the unique aspects, benefits, and considerations for each of these tax-advantaged accounts.

    Employee Pre-Tax Accounts

    1. Premium Only Plans (POP):
      This plan allows employees to pay their portion of insurance premiums with pre-tax dollars, reducing taxable income. Employees with an HSA can also contribute pre-tax through payroll when enrolled in a POP.
    2. Flexible Spending Accounts (FSA):
      Employees contribute pre-tax dollars to pay for eligible healthcare expenses.
    3. Limited Purpose FSA (LFSA):
      A type of FSA available to HSA participants, typically limited to dental and vision expenses (and sometimes preventive care), preserving HSA eligibility.
    4. Dependent Care Accounts (DCA):
      A pre-tax account to pay for eligible dependent care services (e.g., preschool, day camps, before/after-school programs, child or elder daycare).
    5. Qualified Transportation Benefit (QTB):
      Pre-tax commuter benefits for eligible transit, rideshare/vanpool, and qualified parking expenses, up to IRS monthly limits.
    6. Health Savings Accounts (HSA):
      Employee-owned accounts for those enrolled in an HSA-qualified high-deductible health plan; contributions are pre-tax and can be used tax-free for qualified medical expenses.

    Employer-Funded Reimbursement Arrangements

    1. Health Reimbursement Arrangements (HRA):
      Employer-funded group health plans that reimburse employees tax-free for qualified medical expenses up to an annual limit. Some plans allow limited rollover.
    2. Medical Expense Reimbursement Plans (MERP):
      A type of HRA commonly used to reimburse a portion of the health plan deductible; typically does not include rollover features.
    3. Medicare Premium Reimbursement Arrangements (MPRA):
      For certain small employers (generally under 20 employees) to reimburse Medicare Part B/D and Medigap premiums for eligible employees.
    4. Individual Coverage HRA (ICHRA):
      Employer-funded reimbursements for employees’ individual health insurance premiums and/or other qualified medical expenses, subject to ICHRA rules.
    5. Qualified Small Employer HRA (QSEHRA):
      For employers with fewer than 50 full-time equivalents to reimburse individual premiums and medical expenses tax-free, within annual limits.
    6. Excepted Benefit HRA (EBHRA):
      An HRA that can reimburse certain excepted benefits (e.g., dental/vision, COBRA premiums, or short-term limited-duration insurance) up to an annual cap; offered alongside group health coverage.

    These accounts aim to provide employees with more control over healthcare or dependent care expenses while offering tax advantages. Availability and design are subject to IRS and other regulatory requirements.