Pre-Tax Benefits Explained Through Emojis ⚕️

A pre-tax benefit account and an emoji walk into a bar...

What is a pre-tax benefit account? ?‍♂️

A pre-tax benefit account allows you to set aside money from your paycheck before taxes to use for IRS-approved purchases. The items you can pay for through a pre-tax benefit account depends on which plan(s) you have.

There are three categories a pre-tax benefit account can fall under:

  • Medical (Medical FSA, HSA, HRA)
  • Childcare/Adult Care (Dependent Care FSA)
  • Commuter (Mass Transit or Parking)

If you have a pre-tax account for medical purposes, you can only pay for items or services that are not covered by insurance. (Also known as “out-of-pocket” expenses). Let’s start by exploring a Medical FSA.

Medical FSA ?‍⚕️

A Medical FSA is a great savings tool if you have the same out-of-pocket medical expenses year-after-year. The funds in a Medical FSA can be used to cover both planned expenses (including medical ?, dental ?? and vision ?) and unplanned expenses (e.g. broken bones ? or a fever ?).

⭐ Quick Facts about Medical FSAs:
  • Use the Beniversal® Prepaid Mastercard® ? to pay for eligible expenses (if the card is offered with your plan)
  • You cannot ? change your election outside of Open Enrollment (sometimes referred to as Annual Enrollment) or a Qualifying Life Event
  • The full Medical FSA election is available on the first day of plan year ? (? x 12),
  • You do not own the money in an FSA; the funds are fronted by your employer
  • The money must be used within a specific window. Any unused funds are returned to your employer. This is known as the “use-it-or-lose-it” provision
  • There is a limit for how much money can be put in a Medical FSA each year. The limits for 2019 should be released later this month.

Health Savings Account ???

A Health Savings Account is the only pre-tax benefit account that offers a triple tax benefit. Additionally, unlike other pre-tax accounts, an HSA does not have a specific window in which funds must be used. However, there is a yearly cap on the amount that can be contributed to an HSA.

⭐ Quick Facts about HSAs:
  • There is a triple tax benefit: (1) funds can be deposited tax-free; (2) just like a regular savings account, HSA funds stay in a bank ? and can be invested; any interest on the investments grows tax-free; and finally, (3) funds in an HSA belong to you, so the money is yours through job changes, residence changes, and into retirement.
  • There are no penalties for letting your HSA money sit unused to grow for use in retirement
  • To have an HSA, you must have a specific type of health insurance that is compatible with an HSA and has high deductibles
  • If you have an HSA, you cannot have a General Medical FSA or General HRA. You can have a Limited FSA at the same time as an HSA.

Health Reimbursement Account

When you first encounter an HRA, you may feel uncertain ?‍. There is no “one-size-fits-all” for HRAs; each HRA is individually and uniquely designed per employer’s specifications.

⭐ Quick Facts About HRAs:
  • The money in an HRA belongs to and is funded by the employer but can be used by employees
  • Employees can use money in an HRA to pay for eligible medical expenses (as defined by their employer)
  • Must be integrated with a major medical plan (often a High Deductible Health Plan), per the Affordable Healthcare Act

Apart from accounts that can be used for health-related purchases, there are also accounts to help with childcare (or adult care) costs and commuting costs.

Dependent Care FSA ??

A Dependent Care FSA is the only pre-tax account exclusively designed to pay for expenses related to providing child care or adult care. Given that they both include “FSA”, many people confuse Medical FSAs and Dependent Care FSAs. However, the two accounts are entirely separate. Not only must you enroll in them separately, but they are funded separately.

While a Medical FSA covers healthcare expenses, a Dependent Care FSA gives you the power to set aside money to put towards caring for your children and any adult dependents in your care.

⭐ Quick Facts about Dependent Care FSAs:
  • Money ? from Medical FSA cannot ? cover Dependent Care expenses and vice versa
  • The balance grows over time through payroll deductions ? ?
  • You cannot use a card ?? to pay for Dependent Care expenses. You must submit claims for reimbursement ??
  • Medical FSA ≠ a Dependent Care FSA
  • Care provided must be for a qualified person, as defined by the IRS. (See who the IRS considers a “qualified person” here.)

Commuter Plans ???

Mass Transit ????

You can use a mass transit account to pay for any portion of your commute where you take mass transit. This may include: subways, buses, ferries, trains and even van pools. Funds in a mass transit account cannot be used to pay for taxi rides and car pools.

⭐ Quick Facts About Mass Transit Accounts:
  • Funds roll over ♻ month to month
  • You cannot ? use Mass Transit account ?? funds ? to pay for Parking expenses
  • You can adjust your election every month, depending on your commuting needs
  • You are not allowed to submit mass transit claims for reimbursement (except for vanpool).
Parking ?

You can use a parking account to pay for any portion of your commute that involves parking. This may include parking at/near your place of employment or parking at/near a location in which you take mass transit. However, a parking expense at/near your home is not an eligible expense.

⭐ Quick Facts About Parking Accounts:
  • Funds roll over ♻ month to month
  • You can adjust your election every month, depending on your commuting needs
  • You are encouraged to submit parking claims for reimbursement through the BRiMobile app or online
  • Money ? in a Parking account ? cannot ? be used to pay for Mass Transit expenses
  • Pay for your local parking garages, Park-n-Ride, and use SpotHero
  • Visit the Commuter Resource Center to find parking garages near you.

Find out how a Commuter Benefit Plan can help you with going green.

Start Saving

Learn more about which pre-tax benefit account is right for you. Visit our Plans & Services page and check out New to pre-tax benefits? 4 facts you should know.