What is a Health Care Spending Account (HCSA)?

A Health Care Spending Account (HCSA) is a non-taxable alternative or supplement to a traditional benefits plan.

It is an attractive option for a small company who may want to help its employees and their families with some health care costs but may not be in a financial position to offer a traditional benefits plan. Instead of offering a raise, why not consider the more tax-efficient option of an HCSA?

​

How Does a HCSA work?

At the beginning of each benefits year, Employers select a dollar amount for their employees to spend on eligible expenses. Like with a traditional benefits plan, employers may assign different classes of employees to the HCSA (for example, owners, executives, and employees). Each class may be assigned different annual limits. This provides the employer with complete control over claims costs because the employees can only claim up to their individual annual maximums. Funds that are not claimed within the specified period remain the property of the employer.

Who Decides How to Spend the Allotted Funds?

The Employee gets to choose how to use the allotted funds, each year, subject to The Canada Revenue Agency (CRA) eligibility rules. The list is quite extensive and covers items such as:

• Dental services (including orthodontics)

• Specific cancer treatments

• Diabetic supplies

• Registered Massage Therapy, Chiropractic, etc.

​

What Are the Tax Advantages for An Employer?

Health Care Spending Accounts provide a way for employers to deliver benefits to their employees, using pre-tax dollars. As with a traditional employee benefits plan, the costs are tax deductible business expenses, and the benefits are received tax-free. This can be a significant advantage for owners, executives, and key employees to pay for medical and dental expenses with corporate dollars in the most tax-effective means possible.