Lifestyle Spending Accounts (LSAs)
What is a Lifestyle Spending Account (LSA)?
Last Updated: June 3, 2025A Lifestyle Spending Account (LSA) is a relatively new type of employer benefit that provides reimbursements for various wellness or lifestyle expenses. Unlike HSAs and FSAs, LSAs are funded entirely by the employer – employees typically do not contribute their own money. Also, unlike the other accounts, LSAs are post-tax benefits (not tax-advantaged). The primary...
LSA Eligibility
Last Updated: June 3, 2025You’re eligible for an LSA only if your employer offers one as part of the benefits package. There’s no government mandate or individual account setup. The employer defines who can participate – it could be all employees or certain groups (for example, full-time employees only, or those who complete a wellness program, etc., depending on...
How LSAs Work and Eligible Uses
Last Updated: June 3, 2025How It Works An LSA is essentially an employer-funded reimbursement arrangement. The company allocates a certain allowance amount (say, a few hundred dollars per year) for each participating employee to spend on approved wellness or lifestyle expenses. Employees pay for the eligible services or items out-of-pocket, then submit proof of purchase (receipts) to get reimbursed...
LSA Contribution Limits
Last Updated: June 3, 2025Unlike HSAs/FSAs, there is no IRS-imposed contribution limit for LSAs because they are not tax-free. Employers can decide how much to budget. Many employers pick an amount that fits their wellness budget or aligns with specific goals. As mentioned, a few hundred dollars per year per employee is common, but some might be more generous...
LSA Funding and Tax Treatment
Last Updated: June 3, 2025Only the employer can put money into an LSA Employees do not contribute from their paychecks. Importantly, LSA reimbursements are generally treated as taxable income to the employee, because the IRS does not consider most LSA expenses to be tax-free benefits. In other words, an LSA is post-tax: you might see the reimbursement added to...
LSA Rollover Rules and Portability
Last Updated: June 3, 2025Rollover Rules Because LSAs are employer-defined, the treatment of unused funds varies. Typically, if the LSA is run on a reimbursement basis (you spend then get paid back), any unused allowance at the end of the plan year does not carry over – it just stays with the employer (since no cash actually changed hands...