Tax-Advantaged Benefits Programs

One of the more effective ways to reduce overall costs of living is to pay for healthcare expenses using pre-tax dollars. This method, in effect, uses money valued at one hundred percent of wage or salary, as opposed to money devalued by taxation.

To complement group insurance plans, Clark & Lavey can help you implement Tax-Advantaged Programs. Click these links for more information on this page about:

Flexible Spending Accounts (FSA) (top)

A Flexible Spending Account (FSA) is a tax-advantaged way to pay for health and/or dependent care expenses. Employees participating in an FSA elect to have a specified dollar amount deducted from their gross salary before taxes are withheld for each pay period. Employees can pay for certain out-of-pocket medical or dependent care costs with pre-tax dollars. Taxpayers who do not itemize also can get a tax break using an FSA. There are three primary types of FSAs:

  • Health FSAs help employees cover out-of-pocket costs that may be covered under health or dental coverage, including deductibles and copayments
  • Dependent Care FSAs allow employees to pay for certain dependent/child care expenses with tax-free dollars, including daycare expenses and care for an elderly or disabled dependent
  • Parking & Transit Plans cover qualified transportation expenses – up to certain limits – including parking, vanpooling and transit passes

Employees may elect to participate in one or all types of FSA accounts; and by offering an FSA, employers and employees can reduce their tax liability.

Health Savings Accounts (HSA) (top)

A Health Savings Account (HSA) is an account owned by the employee, to be used for payment of allowable current and future medical expenses. Individuals and/or employers can make pre-tax contributions in amounts equal to established limits.

Attributes of HSAs include:

  • HSA funds are fully vested and may be carried over from year to year
  • Funds are portable from employer to employer
  • Funds are not subject to taxation as the account grows, or when it is used to pay for eligible medical expenses
  • Employers can make comparable contributions on behalf of all participating employees
  • HSAs are required to be funded through a trust or custodial account
  • HSAs must be used in conjunction with an HSA-qualified High Deductible Health Plan (HDHP)
  • Other than the HDHP, participants may not be covered by other health insurance except coverage for preventive care or a specific disease
  • Enrollees in an HSA must be under 65 years old, but may continue to use funds from an existing HSA after age 65.

Health Reimbursement Arrangements (HRA) (top)

A Health Reimbursement Arrangement (HRA) is used to pay for qualified medical expenses. HRAs may also be used to reimburse employees for the purchase of health insurance.

HRAs are only available through an employer and can only be funded by the employer. The employer owns the account, and employees are reimbursed for any eligible medical expenses from it. Just as health insurance carriers process claim payments for covered individuals, HRA administrators process payments for eligible expenses, thus relieving the employer of the burden.

Money remaining in an HRA account at year-end can be carried over to the next plan year, and the employer may cap the carryover amount.

Premium Offset (Section 125) Plans (top)

A Premium Offset Plan (POP) is the simplest type of Section 125 ‘cafeteria’ plan. It enables an employee to pay for eligible insurance premiums using pre-tax dollars, essentially reducing the employee’s federal income tax, FICA, payroll taxes and, where applicable, state taxes.

Products eligible for premium payments using POPs include health, dental and vision insurance. With some restrictions, POPs may also be used to pay disability and life insurance premiums.