With the 2017 tax season in full swing, employers — and employees — are probably focusing on benefit programs that offer tax advantages in addition to their other functions.
According to YouDecide, a voluntary benefits outsourcing, consulting and technology firm, the top three requested employee pretax benefit programs are health savings accounts, educational assistance and commuter benefit programs.
And according to Willis Towers Watson’s 2016 survey on voluntary benefits, employers are expanding their use of voluntary benefits as an “inexpensive way to enhance their portfolio of benefit offerings.”
In fact, the survey reports that 92 percent of U.S. employers believe voluntary benefits and services (VBS) will be important to their employee value proposition over the next three to five years, compared with 73 percent in 2015.
Personalization of benefits packages is becoming ever more important as the workforce diversifies, says the study.
In addition to conventional voluntary benefits such as supplemental life and disability, dental and vision insurance, companies are finding that employees are looking for a broader selection of new and emerging offerings.
Among those perks are identity theft protection, offered by 35 percent of employers in 2015 and expected to double to nearly 70 percent by 2018; critical-illness insurance, offered by 44 percent of employers in 2015 and expected to grow to 73 percent by 2018; student loan repayment programs, offered by 4 percent in 2016, according to a 2016 study by the Society of Human Resource Management, and expected to rise to 26 percent by 2018; and even pet insurance, offered by 36 percent in 2015 and expected to grow to 60 percent by 2018.
But at tax time, the stars of the show are tax-advantaged benefits, and there’s no denying that the three most popular do have a lot to offer.
HSAs are popular thanks to a number of advantages in addition to their tax benefits. Employees enrolled in high-deductible health plans can contribute to these accounts without having to pay taxes on their contributions — and they don’t lose the money if they don’t spend it within the year; instead, the money rolls over and accumulates.
HSAs can even be used for investing, to grow the balance against medical expenses in retirement, though very few account holders use them that way.
Employees are also glad to get a little help from employers with the cost of education, and can exclude up to $5,250 of those benefits under an educational assistance program when tax time rolls around. The money can include payments for tuition, fees and similar expenses; books; supplies; and equipment.
Then there are tax-free commuter benefits, also known as qualified transportation fringes. A federal benefit authorized under Internal Revenue Code Section 132(a), Qualified Transportation Fringes, this benefit allows employees to cut monthly commuting expenses for transit, vanpooling, bicycling and work-related parking costs.
Not only are such benefits excluded from gross income subject to federal taxes, many states also exclude them from state and local taxes.
Other tax-advantaged benefits aren’t necessarily at the top of employees’ wish lists, such as flexible savings accounts, used for IRS-approved medical care, procedures or supplies, or adult-care or childcare expenses. FSAs are useful, but use-it-or-lose-it is not particularly winning.
However, as prospective employees become more discerning in evaluating the full benefits package, it’s possible that even more offerings will come to light.