The name alone – “pre-tax benefit accounts” – implies there might be tax implications. However, you might be surprised to learn there are little or no tax consequences for most of these benefits.
Use these simple tips as your tax guide to pre-tax benefit accounts. (And how much effort you’ll have to put in before April 18th).
Commuter Benefit Accounts—Don’t stress it
Let’s start with a simple one—Commuter Benefit Accounts. The value of your mass transit and/or parking benefit election is taken from your pay and placed in a mass transit or parking account on a pre-tax basis. (Up to the maximum monthly transit or parking limit). As long as your election doesn’t exceed the monthly limits, there are no reporting requirements on your tax return.
Any part of your election that does exceed the maximum monthly limit is included as income on your W-2. But even this doesn’t require special reporting on your part.
HRA—For your records only
While Health Retirement Accounts often have complexities in their rules, there is nothing complicated about HRAs during tax time. In fact, they might be the easiest account at tax-time.
Why is that?
Simple. There is no deduction to report on your taxes because HRAs are funded by your employer. You do not have to report any additional disbursements on your taxes either.
The value of your HRA may be included in Box12 DD on your W-2. This is the total cost of what you and your employer paid for health coverage. This is for your information and there are no reporting requirements. It doesn’t get much easier than that!
Medical FSA—Minimal to no effort at tax time
Like an HRA, there is no reporting requirement for an FSA. Be aware that if you itemize your medical expenses, you can’t deduct qualified medical expenses paid with pre-tax dollars from the FSA.
Dependent Care FSA—Expenses are reported
Tax reporting for your Dependent Care FSA will require a little effort, but we promise it will be far less stressful than when your kids start acting up.
When filing your taxes, there are two components. First, report the value of your dependent care benefit. This is generally reported on your W-2. Next, report the qualified dependent care expenses you incurred, including information regarding the individual or facility providing the services.
If you have more than one child/dependent, you may be eligible for an additional child care credit. Be sure to report the full cost of services (by dependent) to take advantage of the potential tax credit.
Health Savings Account—Tax time pay-offs
Finally, let’s move to Health Savings Accounts. HSAs are the most involved account at tax time. But, even HSA tax reporting can be simple.
What are you required to report for your HSA?
You need to report any money that was deposited into the HSA and any money taken out of the account. This information is reported in IRS Form 8889-SA and gets filed with your taxes. Tax preparation software will walk you through the information needed to populate the form. If you use an accountant, they should ask about your HSA as well!
How do you know what you need to report?
You will receive several items that will assist in reporting your HSA.
- 1099-SA: This document is sent by the HSA custodian by January 31 each year. It reports what funds were used from the HSA. You will use this document when filing your taxes.
- W-2: Your W-2 from your employer will include the total value of pre-tax contributions and employer contributions for the year. If all of your contributions were made through your employer, you will not need to report any contributions separately.
- Annual account summary: You will have access to an annual account summary. This is typically provided by the HSA custodian. It provides a summary of all activity. You will want to look at the total amount reported on the annual account summary less all contributions reported on your W-2 to determine if you are eligible for additional post-tax contribution deductions.
- 5498-SA: Your HSA custodian sends the 5498-SA, typically between April 15 and May 31. It confirms your contributions for a given tax year. No action required.
Hopefully tax time will be a little less stressful this year knowing your pre-tax benefits are under control.