INDONESIAKININEWS.COM - A Lifestyle Spending Account (LSA) offers employers an opportunity to help fund health and wellness costs that a tr...
LSAs are often used as perks to attract and retain quality employees. Employers tailor accounts to reimburse specific costs. Here’s how it works.
A financial advisor can help you create a financial plan for your health and wellness needs.
What Is a Lifestyle Spending Account?
A Lifestyle Spending Account (LSA) is a relatively new employee perk that is designed to encourage spending on wellness activities.
Many employers already offer Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) to help employees save and cover health-related costs. But an LSA opens an entirely different type of spending.
An FSA or HSA has government-imposed spending restrictions. These restrictions only allow spending from either account on qualified medical expenses. By contrast, an LSA allows you to spend freely on physical, financial and emotional wellness.
The employer will decide what is deemed eligible spending. Although the specifics of an LSA will vary, employers may allow you to spend this money on gym memberships, nutritional supplements, daycare, groceries, and more.
LSA vs. HSA
While both LSAs and HSAs aim to cover health-related needs, they are each set up differently.
A Health Savings Account (HSA) has very specific rules. You won’t find variation from employer to employer. Instead, you’ll be able to contribute up to the maximum of $3,850 in 2023 as an individual ($3650 in 2022) or up to $7,750 as a family ($7,300 in 2022). You won’t be eligible to contribute to an HSA unless you have a high-deductible health plan.
After you make contributions to an HSA, there are very specific withdrawal rules. In general, you can only withdraw the funds to cover a qualified medical expense.
For example, qualified medical expenses can include a breast pump, fertility treatments, guide dog, drug addiction treatments, long-term care, contact lenses, and payments to a doctor, dentist, surgeon, or psychiatrist.
When your employer offers an LSA, there are no such restrictions. You will likely only be allowed to spend the funds on specific categories. But the rules are set by your employer, not the IRS.
Lifestyle Spending Account: Eligible Expenses
Employers are the decision-makers when determining what expenses are eligible for reimbursement through a Lifestyle Spending Account.
It’s another potential perk that employers can offer to improve their relationship with employees. Plus, the emphasis on health and wellness can help the employer foster a healthy workplace culture.
Although the eligible expenses will vary based on your employer, here are a few examples of common spending opportunities through LSAs:
- Gym memberships
- Nutritional supplements
- Fitness equipment
- Groceries
- Daycare
- Athletic clothes
- Life coaching
- Continuing education courses
- Sports equipment
Essentially, anything that promotes your wellness could be considered an eligible expense. If you have access to an LSA, reach out to your Human Resources department to get the specifics on this relatively unique benefit.
Lifestyle Spending Account: Taxes
When you spend the funds from your LSA, that will increase your taxable income for the year.
For example, let’s say that you have a lifestyle spending account with $1,000 in it for the year. You spend $500 on a gym membership. When you are reimbursed by your employer for the $500, you’ll have to report that as income at tax time.
Although you have to pay income taxes on the funds spent, it’s a way for employers to prioritize your wellness. You’ll only have to pay taxes on your Lifestyle Spending Account if you actually spend the funds.
Advantages of an LSA
A Lifestyle Spending Account comes with many advantages, including:
- Funds to use specifically on wellness activities
- Flexible spending opportunities
- Only taxable income when you spend it
The flexible spending possibilities of an LSA can be exciting for employees. But employers also enjoy the benefit of only having to cover the cost of used funds. So, if an employee doesn’t spend their allocated LSA funds, the company can hang onto that money.
Disadvantages of an LSA
As with all financial products, there are also some disadvantages of an LSA to consider, including:
Taxable income when spent
Limitations set by the employer
As an employee, you’ll add to your taxable income when you spend funds from your LSA. Depending on your company, you might not find the eligible expenses align with your personal lifestyle and wellness needs.
Bottom Line
A Lifestyle Spending Account (LSA) is a relatively new benefit being offered by employers. If you have access to an LSA, don’t hesitate to spend the funds. But make sure that you check out your employer’s rulebook on eligible spending before springing for a major purchase.
Tips for Health Savings
A financial advisor can help you put a financial plan into action for your health needs.
SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.
If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
A Health Savings Account is another type of account that you may be able to set up through your employer, if you have a high deductible health insurance policy.
Source: smartasset
