![]() There is an argument that employers should include in employees’ taxable income the value of the amount made available to employees for reimbursement regardless of the actual amount reimbursed to the employee. Any amount made available to the employee but not reimbursed (i.e., carried over or forfeited) is therefore not included in the employee’s taxable income. Under this standard approach, the employer includes in the employee’s gross income (and subject to withholding and payroll taxes) the amount of each LSA reimbursement. Most employers take the position that LSA benefits are taxable to employees upon reimbursement. Therefore, employees do not enjoy an exclusion from income with respect to LSA benefits as they would for other account-based offerings such as HSAs, FSAs, and HRAs. LSAs are purposefully designed not to be a tax-advantaged account to avoid the strict limitations associated with those arrangements. Pet care such as walkers, day care, grooming Personal development classes such as art and cooking Retreats such as leadership and spiritual retreats Non-medical counseling services such as marital counseling, life coaching, parental skill counseling, executive coaching Home purchase costs such as down payment, closing costs Passes such as ski, snowboard, golf, swimming Sport lesson expenses such as golf, swimming, tennis, dance Recreational sport expenses such as rock climbing, martial arts, tennisįitness class expenses such as yoga, pilates, cycling Gym, health club, spa, and fitness studio memberships If it is possible to generalize as to a “typical” LSA, employers frequently offer roughly $500-$1,000 annually for reimbursement of expenses that generally fall under the non-medical wellness umbrella.Įxamples of common eligible expenses include: Employers have full discretion over what expenses will be eligible for reimbursement. The LSA concept is flexible enough that there is no uniform definition of LSAs or what they offer. The purpose of an LSA is for employers to offer employee access to funds to reimburse the cost of common and beneficial expenses incurred during ordinary life. Employers’ main LSA compliance concerns will be taxation of the LSA and ensuring the LSA does not inadvertently trigger group health plan or other unintended legal requirements. Short Answer: Fortunately, compliance for LSAs is relatively simple compared to tax-advantaged account-based offerings such as HSAs, FSA, and HRAs. Question: What are the compliance issues associated with the (increasingly popular) employer-sponsored lifestyle spending account? ![]()
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