FSAs, HRAs, and HSAs, what do all those letters mean?
FSA stands for Flexible Spending Account. An FSA allows an employee to set aside a portion of their earnings on a pre-tax basis to pay for qualified expenses, most commonly medical expenses (medical FSA or health FSA), but often for transit or dependent daycare. Since funds are deducted pre-tax, it provides a payroll tax savings to the participant. Qualified medical expenses are outlined in IRS Code Section 213(d) and include copays, deductibles, prescriptions and many other medical expenses.
A few rules for medical FSAs: Only available to employees of a company where a group health plan is offered, but does not need to be elected. Business owners are not eligible to participate. The 2015 maximum contribution is $2,550/year. Benefits are essentially “use-it-or-lose-it” for the plan year, but companies may amend their plan to allow a carryover of up to $500, or a grace period of up to 2 ½ months during which claims may be incurred.
HRA stands for Health Reimbursement Account. An HRA is an employer-funded, tax advantaged health benefit plan that reimburses employees for medical expenses not covered by the company’s standard insurance plan. Qualified medical expenses are outlined in IRS Code Section 213(d), but there can be employer-designed limitations, such as reimbursement only for the deductible or a portion of.
A few rules for HRAs: An employee must be enrolled in a group health plan that is tied to the HRA in order to participate. Business owners are not eligible to participate. The employer owns the account and determines whether any unused funds roll-over year to year. Employees cannot make contributions.
HSA stands for Health Savings Account. An HSA is an account created for individuals who are covered under high-deductible health plans (HDHPs) to save for medical expenses that HDHPs do not cover. Money contributed into the account is tax deductible and grows tax free, for this reason financial institutions typically administer HSA accounts. Qualified medical expenses are outlined in IRS Code Section 213(d). Distributions for nonmedical expenses are allowed, but are taxable and subject to a 20% excise tax if withdrawn prior to retirement age.
A few rules for HSAs: Participants of any group health or individual HDHP are eligible to establish an HSA account, as long as they are not entitled to Medicare and cannot be claimed as a tax dependent. An employer can also contribute to an HSA on your behalf. The 2015 maximum HSA contribution limit is $3,350/Individual or $6,650/Family with an additional $1,000 catch-up contribution for age 55 or older. An HDHP is defined in 2015 as a plan with a minimum $1,300/Individual or $2,600/Family up-front deductible.
A Miller’s Employee Benefits representative can help you set up and administer your FSA, HSA, or HRA. Contact us today to learn more! Shannon Bristow ext. 3380 or Ronald Hutson ext. 3340 at 610-269-4500.