Can I use a Lifestyle Spending Account (LSA) for career coaching?

You may be wondering if you can use a Lifestyle Spending Account (LSA) for career coaching.

LSAs are a versatile employee benefit that can cover a wide range of expenses related to your well-being and professional development.

In this article, we'll explore what LSAs are, how they work, and whether they can be used for career coaching.

What is a Lifestyle Spending Account (LSA)?

A Lifestyle Spending Account is an employer-funded benefit designed to support various aspects of employee well-being. These accounts provide funds that you can use for eligible expenses, which may include career coaching, depending on your employer's plan.

LSAs offer flexibility and customization. Employers determine the parameters of their LSA program, such as contribution amounts, funding frequency, and eligible expense categories. This allows companies to tailor the benefit to their employees' needs and their organizational goals.

How do LSAs differ from other benefits?

LSAs are distinct from traditional employee benefits like health insurance or retirement plans. They provide a wider range of coverage, allowing you to use the funds for expenses that enhance your overall well-being, both personally and professionally.

Unlike Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs), which are limited to medical expenses, LSAs can cover various categories like physical fitness, mental health, financial wellness, and professional development. This flexibility makes LSAs a valuable addition to a comprehensive employee benefits package.

What are the tax implications of LSAs?

The tax treatment of LSAs depends on how your employer structures the program. In most cases, LSA funds are considered taxable income, meaning you'll pay taxes on the amount you use from the account.

However, some exceptions exist. For example, if your employer offers an LSA for education expenses that meet IRS requirements, the funds may be tax-deductible. It's important to consult with your HR department or a tax professional to understand the specific tax implications of your LSA.

Eligibility for Career Coaching Under LSAs

Employer-Defined Parameters

Many employers include career coaching as an eligible expense under their LSA programs. They recognize the value of investing in their employees' professional growth and development. Related services that may also qualify include:

• Executive coaching
• Leadership development programs
• Professional certification courses
• Skill-building workshops

For example, Ohio State University's LSA explicitly covers "personal growth coaching", while Espresa's LSA guidelines list "professional development workshops and courses" as qualified expenses.

Funding Flexibility

Employers typically contribute $500–$2,000 annually per employee to their LSA, though amounts can vary. You can access these funds via debit cards or reimbursements, depending on your company's setup.

This funding model gives you the flexibility to choose the career coaching services that best align with your professional goals and learning style. Whether you prefer one-on-one coaching sessions, group workshops, or online courses, you can use your LSA funds to cover the costs.

Benefits of Using LSAs for Career Coaching

Enhances Employee Retention

Offering career coaching through an LSA shows your company's commitment to your professional growth. When you feel supported in your development, you're more likely to stay with your employer long-term.

LSAs that cover coaching expenses demonstrate that your organization values your contributions and wants to invest in your future. This boosts job satisfaction and reduces turnover, saving your company the high costs associated with recruiting and training new hires.

Attracts Top Talent

In today's competitive job market, top candidates seek employers who prioritize their professional development. Including career coaching as an eligible LSA expense sets your company apart and helps attract high-quality talent.

Potential hires view LSAs as a valuable benefit that enables them to enhance their skills and advance their careers. By offering this perk, your organization positions itself as an attractive employer that supports its employees' growth and success.

Improves Productivity

Career coaching helps you identify areas for improvement, develop new skills, and overcome challenges. As you gain knowledge and confidence in your role, your productivity and performance naturally increase.

LSAs that fund coaching services equip you with the tools and strategies needed to work more efficiently and effectively. This benefits both you and your employer, as you contribute more value to the organization while feeling a sense of personal accomplishment.

Personalizes Coaching

LSAs empower you to choose coaching programs that align with your specific goals and needs. Whether you want to enhance your leadership abilities, improve your communication skills, or navigate a career transition, you can select a coach who specializes in your areas of focus.

This personalized approach ensures that you receive targeted support and guidance relevant to your unique situation. By tailoring coaching to your individual objectives, LSAs help you maximize the impact of the service and achieve your desired outcomes.

Tax and Compliance Considerations

LSAs are generally funded with post-tax dollars, meaning you'll pay income tax on the amount you spend from the account. This differs from other employee benefits like Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs), which offer tax advantages but come with complex ERISA regulations.

When using LSA funds for career coaching, you may need to provide documentation verifying the expense's work-related purpose. This could include a coaching agreement outlining the goals and objectives of the program, or a letter from your employer confirming the relevance of the coaching to your job responsibilities.

Proper record-keeping is essential to ensure compliance with IRS guidelines. Keep receipts, invoices, and any other documentation that substantiates your coaching expenses. Your employer may require you to submit this information to validate the use of LSA funds.

While navigating the tax implications of LSAs can seem daunting, many employers work with third-party administrators or use software solutions to streamline the process. These tools help ensure that expenses are properly categorized, documented, and reported for tax purposes, making it easier for you to take advantage of this valuable benefit.

How to Confirm Your LSA Covers Career Coaching

To take advantage of LSA funds for career coaching, you'll need to verify that your employer's plan includes this expense category. Here's a step-by-step guide to confirming your LSA's coverage and submitting the necessary documentation for reimbursement.

Review Your Employer's LSA Documentation

Start by carefully reviewing your company's LSA policy documents. These materials outline the specific expense categories eligible under your plan. Look for terms like "career coaching," "professional development," or "executive training" in the list of covered items.

If you can't find a clear reference to coaching services, don't assume they're excluded. Many employers offer flexibility in their LSA programs, allowing for a wide range of expenses that support employee well-being and growth.

Consult HR for Clarification

When career coaching isn't explicitly listed in your LSA documentation, reach out to your HR department for guidance. They can clarify whether coaching falls under an existing expense category or if there's a process for requesting custom approvals.

Prepare a brief summary of the coaching program you're interested in, highlighting how it aligns with your professional development goals and benefits your work performance. HR may ask for additional details or documentation to determine eligibility.

Remember, your employer wants you to utilize your LSA funds in meaningful ways. They're often open to considering expenses that contribute to your overall well-being and job satisfaction, even if they're not specifically mentioned in the policy.

Submit Required Expense Documentation

Once you've confirmed that career coaching is an eligible expense under your LSA, you'll need to submit the appropriate documentation for reimbursement. This typically includes:

• Coaching invoices or receipts showing the provider's name, date of service, and amount paid
• A summary of the coaching program's goals and objectives, demonstrating its relevance to your professional development
• Any additional records or agreements required by your employer, such as a coaching contract or progress reports

Keep in mind that LSA reimbursement processes vary by company. Some employers may have you submit expenses through an online portal, while others rely on traditional paper forms. Follow your organization's specific guidelines to ensure timely processing and payment.

What Are the Limitations of Using LSAs for Coaching?

While LSAs offer a valuable opportunity to invest in your professional development through career coaching, it's important to understand the potential limitations of using these funds for this purpose.

Employer Discretion

Employers have the final say in determining which expenses qualify under their LSA program. If career coaching isn't explicitly listed as an eligible category, you may not be able to use your LSA funds to cover these costs.

However, this doesn't mean you're out of options. Many employers are open to considering expenses that fall outside the predefined categories, especially if they clearly contribute to your professional growth and job performance. It's always worth having a conversation with your HR department to explore the possibility of using LSA funds for coaching, even if it's not specifically mentioned in the policy.

Use-It-or-Lose-It Policies

Another potential limitation of LSAs is the "use-it-or-lose-it" policy that some employers implement. Under this structure, any unused funds in your LSA at the end of the plan year are forfeited, meaning you can't carry them over to the next year.

This policy can create a sense of urgency to use your LSA funds before they expire. If you're considering using your LSA for career coaching, it's important to plan ahead and ensure you have enough time to complete the coaching program within the plan year.

However, not all employers enforce this policy. Some companies allow you to roll over unused LSA funds to the following year, giving you more flexibility in timing your coaching expenses. Be sure to review your employer's specific LSA guidelines to understand their rollover provisions and plan accordingly.

Is Using an LSA for Career Coaching Right for You?

Using an LSA for career coaching can be a smart way to invest in your professional development. These employer-funded accounts provide the financial support you need to access valuable coaching services that can help you grow in your career.

Before tapping into your LSA for coaching, it's important to confirm your employer's specific rules and eligible expenses. Review your company's LSA policy documents and reach out to HR with any questions. They can clarify whether career coaching qualifies under your plan and guide you through the reimbursement process.

Collaborating with HR is key to maximizing your LSA benefit for your career development goals. Share your interest in using LSA funds for coaching and discuss how the program aligns with your professional objectives. HR can offer insights on selecting a coach, submitting expenses, and tracking your progress.

LSA platforms like Forma empower employees to take control of their benefits and choose the services that best support their well-being. With user-friendly tools and resources, you can easily explore eligible expenses, submit claims, and monitor your account balance.

If you're new to the concept of LSAs, take some time to learn more about how these accounts work and the many ways they can support your personal and professional growth. From career coaching to wellness programs, LSAs offer a flexible and personalized approach to employee benefits.

Forma makes it easy for you to maximize your Lifestyle Spending Account benefits, including career coaching, if your employer allows it. With a seamless platform and expert support, Forma helps you navigate eligible expenses and get the most from your LSA. Schedule a consultation with one of our experts today.