This may be the shortest blog on pre-tax benefits you will ever read. We can’t say for sure, but once you finish it, you can be the judge.
We’re going to take 5 minutes to redefine 10 confusing pre-tax phrases used in pre-tax benefits. Witness the transformation.
Not kidding. If you haven’t heard of these before, they can seem odd. Pre-tax benefits are, in effect, a way to decrease your income before taxes so you pay less in taxes. That’s their chief purpose. They allow you to set aside money from your paycheck now so you don’t lose as much to taxes later.
Of note: pre-tax benefits are only available if your employer offers them. There are generally four different types of pre-tax benefits. Your employer may offer one or all.
A purchase, service, or item that is allowed to be purchased with pre-tax funds per IRS Code Section 213(d). For an overview of what is eligible, visit our Eligible Expenses and Eligible Merchants page. If an expense is not eligible, it cannot be paid for with pre-tax funds.
A piece of paper acting as proof that what an employee purchased was eligible. A credit card receipt usually doesn’t always meet these requirements. An itemized receipt is required. You may have to ask your care provider for an itemized receipt.
A phenomenon only able to be experienced by those who have used a benefits card. After swiping the card and paying for an eligible service, you may receive a notice that you need to provide proof the purchase was eligible. See how to respond to a substantiation request (also known as a document request or receipt request). To complete a substantiation request, you will need your itemized receipt.
There are two pieces that make up a claim. The first part is when an eligible item was paid for out of pocket. (In other words, you didn’t make the purchase with money from a pre-tax account). The second part is asking to be reimbursed for the purchase through your pre-tax account.
In sum, you submit a claim for reimbursement in order to pay yourself back from your pre-tax account. Need to submit a claim for reimbursement? Follow our guide here.
When employees sign up for benefits like health insurance and pre-tax benefits.
There are a few ways to define this. Generally, it is regarded as the dollar amount that is selected to be set aside in your account(s) during the year. Each account you open requires you to “set” a new election.
When you set an election with a Flexible Spending Account, the amount is locked in for the year. You also set up an election for your account(s) under a Commuter Benefit Plan. These elections can generally be changed each month, if needed. Finally, an election for a Health Savings Account (HSA) usually offers some flexibility and can be changed throughout the year. How often an HSA election can be changed will depend on your employer’s rules.
Fun fact: There is no such thing as an HRA election. We explore this a little more in the HRA definition.
Dependent Care Account
Also known as a Daycare Account, a Dependent Care Account allows employees to set an election that is used to pay for eligible child care services. The name “Dependent Care” can be a little confusing. It makes it sound like the funds in the account are an extra allowance to pay for kids’ medical expenses.
However, that is not what this account is used for. It is only for eligible child care expenses. Thankfully, kids’ medical expenses are covered under a Medical FSA.
The act of an election being deducted from an employee’s paycheck and being put into a pre-tax account. Deposits can be tracked by logging in to your account on BRiWeb or viewing them through the BRiMobile app.
A Health Reimbursement Account. These accounts are very special because they are not actually pre-tax accounts. For the sake of simplicity, they are often lumped in with pre-tax accounts. However, employees have no control over deposits or elections for HRAs.
An HRA is free money from your employer. Your employer determines many of the rules regarding what expenses are eligible, when benefits are paid, and when claims must be submitted. Want to know more about HRAs? Check out this HRA overview.
That’s it. You finished! You now know the definitions of nine of the most
confusing common pre-tax terms.
Are there other terms you want to know? Tell us in the comments!