There are some things you should know when comparing the tax advantages of an HRA and FSA. Both are designed to help people pay for out-of pocket clinical expenses, but they do so in different ways. To understand how you can maximize these benefits and also stack them, it is necessary to have some background information. Let’s get to the bottom of it.
What is a FSA?
A flexible investing account is a type of account where employees can deposit cash to pay for specific out-of pocket healthcare costs. This cash is not taxed, so you will certainly save a sum equivalent to what you would have actually paid in taxes.
Some companies may pay your FSA but not be required to.
How FSAs work
The worker sends a claim (along with their employer) to the FSA, supplying proof of their clinical costs and a declaration stating that they are not covered by the plan. The costs are then reimbursed. FSA funds may be used to pay for deductibles and copayments but not insurance costs.
You should not put more money in your FSA at the end of the calendar year than you expect to spend within the next year.
Take a look at the facts about FSAs on healthcare.gov
- The FSA is covered up to $2,750 per year for each company. Your partner, if you are married, can also place up to $2,500 in an FSA at their company.
- FSA funds may be used to pay for specific clinical and oral expenses.
- FSA funds may be used to pay for deductibles and copayments but not for insurance costs.
- FSA funds can be used to purchase prescription medications, as well as non-prescription drugs with a prescription from a physician.
- The FSA can also be used to cover the cost of certain clinical equipment, such as plasters and props. It could even cover analysis tools, like test sets for blood glucose.
- This list reveals the usual clinical and oral expenses that are allowed.
What is a HRA?
A HRA (wellness reimbursement plan) is:
- Company pays all staff members (no employee payments).
- If a staff member leaves the firm, their account will remain with them.
- Compensation for medical insurance and clinical expenses
- After the expenses are sustained and invoices are provided, cash is paid for them.
- To participate, workers must have medical insurance that is certified.
- Benefits of Tax Obligation: No tax obligation for employees and companies
How HRAs work
HRAs are simple to understand: The company pays for medical and also other costs on a tax free basis. Employees can then choose a plan that best suits their needs. The workers are then compensated when they submit an insurance claim.
The ICHRA and QSEHRA are two HRAs that are readily available.
We’re so excited about these HRAs and all of the benefits they provide, that we wrote detailed, comprehensive overviews on the ins and outs.
- Here’s a quick overview of the HRA.
- Here’s a quick overview of the Certified Small Business HRA.
Here are some ways you can use HRAs for your insurance costs or certified medical expenses:
- Only Reimburse Insurance Premiums: Companies may limit compensations only to qualified expenses. This can include qualified dental costs, vision expenses, etc., as long as there is a health insurance that meets the minimum vital protection (MEC) requirements for QSEHRA.
- Insurance policy premiums and also medical costs are reimbursed: Some companies choose to pay for clinical expenses as well. Qualified expenses include medical professional visits, copays and prescriptions. They also include oral cleanings, glasses, diabetes materials, etc. Remember: Companies may choose to exclude certain categories of expenses (i.e. “prescriptions”), as long as they apply the exemption to everyone.
- Here’s a list of all the expenses that are considered to be certified.
Have you still got questions about HRA and FSA?
Need help understanding how to get the most from these tax-friendly tools? Our HRA experts are ready to speak with you via our website. For more ideas on how to be clever, you can also check out our guide on local business tax obligations.
