The pre-tax benefits guide for employer-sponsored HSA, FSA, and Commuter programs
HSA, FSA, Commuter? Use this guide to clear up the confusion so that employers know how pre-tax benefits work and better support employees using them.
The value of pre-tax benefits for employees
Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), and Commuter programs have become increasingly popular in the modern business world, and with good reason. Pre-tax benefits give employees the opportunity to use pre-tax dollars eligible expenses. Employees can save up to 40 percent on taxes, depending on their tax bracket.
As healthcare, childcare, and gas costs continue to rise, the savings pre-tax benefit programs provide can be game-changing in easing financial pressures. Employers that offer these benefits help employees get the services they need and save money in the process. Given the advantages, HSAs, FSAs, and Commuter programs can be powerful benefits that check many boxes meaningful to workforce well-being from financial to mental health, physical health, and more.
While beneficial, unfortunately, many employees don’t understand the nuances of pre-tax accounts, and often don’t use these programs to their full potential. Whether during open enrollment or throughout the year, it’s important to educate employees to ensure they know how to use pre-tax benefits and get the support they need.
Understanding the difference between pre-tax benefits
Pre-tax benefits are designed to help employees save on payroll taxes. HSA, FSA, and Commuter programs are different. It’s essential for those offering pre-tax benefits to understand what the various types are - especially when making selections best suited to your employees’ individual (and often changing) needs. In general, pre-tax benefits include the following:
- A Health Savings Account (HSA): An HSA is a personal savings account that allows employees to set aside pre-tax dollars for current and future healthcare expenses for themselves and their dependents. Employees are eligible to open an HSA if they are enrolled in an HSA-eligible high deductible health plan and do not have any disqualifying coverage. HSAs never expire and funds roll over year after year. Employees can also invest HSA dollars.
- A Flexible Spending Account (FSA): A healthcare FSA allows employees to set aside pre-tax dollars to spend on eligible medical, dental, and vision expenses for themselves and their dependents. FSAs are generally use-it-or-lose-it so it’s important to be thoughtful when determining how much to put aside. Employees cannot enroll in this program if they are contributing to or receiving contributions in an HSA.
- A Limited-Purpose FSA (LPFSA): A type of flexible spending account that allows employees to set aside pre-tax dollars for dental and vision expenses for employees and their dependents. This limited FSA is compatible with enrollment in an HDHP with HSA.
- A Dependent Care FSA (DCFSA): A type of flexible spending account that allows employees to set aside pre-tax dollars for dependent care expenses, such as daycare, preschool, and adult daycare. Like traditional FSAs, DCFSAs are generally use-it-or-lose-it so it’s important to be thoughtful when determining how much to put aside.
- A Commuter Account: Commuter accounts allow employees to set aside pre-tax dollars for mass transit and parking expenses associated with their daily commute to work.
Given the complexities of pre-tax benefit programs, Forma has created an educational series to break down barriers in understanding. Employers can use the contents to set up successful programs and as a tool for employees to understand pre-tax benefits, the differences, and how to use the options available to them.
For more information: Choose from one, some, or all of the links to view more details on pre-tax benefit programs.
A closer look at pre-tax benefits: HSA vs. FSA comparison
Guidelines for compliant HSA FSA compatible programs