Tax-advantaged accounts such as Health Reimbursement Arrangements (HRA), Flexible Spending Accounts (FSA), Health Savings Accounts (HSA), Premium Only Plans (POP), and Dependent Care Accounts (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.
Employee Pre-Tax Accounts
These accounts allow employees to reduce their taxable income by setting aside pre-tax dollars through payroll for eligible health, dependent care, and commuter expenses.
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.
Employees contribute pre-tax dollars to pay for eligible healthcare expenses.
A pre-tax account to pay for eligible dependent care services, such as preschool, day camps, before/after-school programs, and child or elder daycare.
Pre-tax commuter benefits for eligible transit, rideshare/vanpool, and qualified parking expenses, up to IRS monthly limits.
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
These arrangements are funded entirely by the employer and reimburse employees tax-free for qualified medical expenses and, in some cases, individual health insurance premiums.
Employer-funded group health plans that reimburse employees tax-free for qualified medical expenses up to an annual limit. Some plans allow limited rollover.
A type of HRA commonly used to reimburse a portion of the health plan deductible. Typically does not include rollover features.
For certain small employers (generally under 20 employees) to reimburse Medicare Part B/D and Medigap premiums for eligible employees.
Employer-funded reimbursements for employees’ individual health insurance premiums and/or other qualified medical expenses, subject to ICHRA rules.
For employers with fewer than 50 full-time equivalents to reimburse individual premiums and medical expenses tax-free, within annual IRS limits.
An HRA that can reimburse certain excepted benefits — such as dental/vision, COBRA premiums, or short-term limited-duration insurance — up to an annual cap. Offered alongside group health coverage.