Pre-Tax Health Insurance Deductions
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Flexible Spending Account
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A Flexible Spending Account (FSA) is a tax advantage program offered by employers that allows an employee to use pre-tax dollars to pay for certain types of out-of-pocket expenses. The participation in a flexible spending account is usually voluntary and can have additional benefits; one such benefit is having a lower amount of taxable income, which can increase the amount of take home pay.
Health Savings Accounts
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One type of flexible spending account is known as a health savings account, or HSA, which uses pre-tax deductions to pay for qualified medical expenses. A major benefit of an HSA includes claiming a tax deduction on contributions made to the account; another is that an employer's contributions are deducted from an employee's gross income. Interest earned on the account is tax-free, and contributions remain in the account from year to year.
Flexible Spending Arrangement
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A Flexible Spending Arrangement (FSA) will reimburse employees for medical expenses. The account is typically funded by a pre-tax salary reduction agreed to by an employee and employer. An FSA is similar to a health spending account, but has one significant difference; it allows funds to be withdrawn for qualified medical expenses before they have been deposited into the account.
Dependent Care Reimbursement Accounts
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A dependent care reimbursement account, or DCRA, is a type of account that will reimburse an individual for child care or dependent care expenses and uses money that has been set aside by an employer or an employee. When an individual pays for a qualified child or dependent care expense, the cost can be reimbursed tax-free from the DRCA.
Healthcare Reimbursement Accounts
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A healthcare reimbursement account (HRA) can be set up by an individual that uses pre-tax dollars to fund an account that is used for certain medical expenses. Expenses can include deductibles, co-payments, and other costs that are not covered by another type of health insurance. Qualified expenses are then reimbursed to an individual tax-free from the healthcare reimbursement account; HRAs can be offered with other types of health plans, including a health spending account.
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