With the cost of health insurance coverage on the rise and consumers seeing their once low deductibles grow sky high, many Americans have been forced to pay more for their healthcare without the help of insurance. These costs that aren’t covered by insurance companies are called “out-of-pocket” costs.
And health insurance isn’t the only cost that’s rising. The cost of groceries, child care, and gas have all seen spikes as a result of the COVID-19 pandemic. In fact, the International Monetary Fund forecasts that the pandemic will cost the global economy $12.5 trillion through 2024.
As an employer, you’d be surprised by how many of these out-of-pocket costs, both health-related and otherwise, are actually reimbursable, allowing you to help relieve the financial burden on your employees and ensure they have coverage. What’s more, offering reimbursement benefits is an excellent way to retain your best employees and recruit even more top talent.
So which of your employees’ out-of-pocket costs are reimbursable, and how do you start adding this kind of coverage to your employee benefits package? Read on to find out!
Jump to the section you’re interested in:
- Examples of reimbursable out-of-pocket costs
- Are employee expense reimbursements taxable?
Examples of reimbursable out-of-pocket costs
When it comes to reimbursing your employees for the out-of-pocket expenses that employees’ don’t have full coverage for, there are a few different categories of expenses that you can choose to reimburse.
Reimbursable health expenses
First, let’s talk about reimbursable healthcare costs. Given that health coverage has consistently ranked as the most-requested employee benefit, this is an important one to prioritize.
IRS Publication 502 outlines over 200 expenses that are eligible for reimbursement through a plan like a health reimbursement arrangement (HRA), a health savings account (HSA), or even a health insurance stipend.
Here are just a few examples of eligible health coverage expenses:
- Health insurance premiums
- Prescription and over-the-counter drugs
- Doctor’s visits
- Eyeglasses and contacts
- Dental insurance
Reimbursable wellness expenses
While similar to health expenses, reimbursable wellness expenses include coverage on things that go beyond health insurance premiums and prescriptions. Perks like these can be offered by setting up a stipend for your employees—we’ll cover more on those later.
Take a look at a few examples of possible wellness expenses you can reimburse:
- Gym and studio memberships
- Wellness apps
- Exercise classes
Reimbursable remote work expenses
Another category of expenses you can reimburse your employees for is remote work expenses to support your employees who work from home.
While employees who work remotely may be saving on their commute costs, they’re still paying for home office equipment, internet, and phone costs that would otherwise be covered by their employer if they worked in-office.
That’s why many fully-remote companies are adding remote work reimbursements to their employee benefits coverage, usually through a stipend, to make sure their remote employees are taken care of.
Here are a few examples of reimbursable remote work expenses:
- An internet plan
- A cell phone or phone plan
- A standing desk
- Computer monitors
Are employee expense reimbursements taxable?
If you’re ready to start adding out-of-pocket expenses to your employee benefits coverage, you’ll want to make sure you’re doing it compliantly—and that means keeping your taxes in order.
Depending on how you choose to reimburse your employees, there are some tax-free and taxable options to keep in mind.
Tax-free health reimbursement arrangements
The best way to reimburse your employees tax-free for their healthcare expenses, including insurance coverage, is through an HRA. All reimbursements made through an HRA are completely tax-free for the employer and can be tax-free for employees too, so long as they have minimum essential coverage (MEC).
The best part is, you can use an HRA as a stand-alone benefit or alongside your group health insurance plan to help pay for the out-of-pocket expenses that aren’t fully paid for by the group plan.
If you’re looking for something simpler to offer your employees, a stipend is an easy option that’s free of the IRS-regulations that come with HRAs. That means you can reimburse your employees for virtually anything you choose, and not just expenses on a set list from the government.
However, because of this, reimbursements offered through a stipend are taxable. So your employees would need to report their stipend as income like they would the rest of their paycheck come tax season.
Reimbursing your employees for their out-of-pocket costs not only helps your employees pay their bills, but it also helps you ensure they’ll be here to stay. Whether you choose to offer an HRA to reimburse your employees tax-free for their healthcare costs, or a taxable stipend to cover your employees’ other expenses, PeopleKeep can help!
With WorkPerks benefit administration software, you can offer taxable employee reimbursements for health, wellness, and remote work expenses.
At PeopleKeep, we’re experts on personalized benefits, and are ready to help you start offering them. Get in touch with one of our personalized benefits advisors today!