For business owners and HR professionals, it’s no secret that offering a competitive benefits package is one of the most powerful tools you have to attract and retain talent. But what’s not talked about nearly enough is how those benefits can also be a vehicle for wealth-building, not just for your employees, but for your business, too.
That’s where tax-advantaged accounts come in. These aren’t flashy perks like free lunches or office ping pong tables. They’re strategic financial tools that help both employers and employees maximize value without increasing costs. And in today’s economic climate, that kind of efficiency is more than a nice-to-have—it’s essential.
From FSAs and HRAs to HSAs, dependent care accounts, commuter benefits, and lifestyle spending accounts, these programs are transforming the way companies approach compensation and long-term financial wellness. Let’s break down how they work—and why weaving them into your benefits strategy is a smart, wealth-focused move.
What Are Tax-Advantaged Accounts?
Tax-advantaged accounts are benefit tools that allow employees (and sometimes employers) to set aside money for specific expenses on a pre-tax basis. That means every dollar contributed reduces taxable income and stretches further.
For employers, these benefits offer payroll tax savings and the ability to compete with larger companies on compensation—without taking on unsustainable salary increases.
Let’s explore the major players.
1. Flexible Spending Accounts (FSAs): Medical and Dependent Care
Healthcare FSAs let employees contribute up to a set annual limit to pay for out-of-pocket health expenses like copays, prescriptions, dental work, and more. Contributions are deducted from payroll pre-tax, saving employees roughly 20-30% depending on their tax bracket.
For businesses, offering an option like the FSA from Benepass can lower your employer-side payroll taxes. Every dollar an employee contributes is one less dollar subject to Social Security and Medicare taxes—so it’s a win-win.
Dependent Care FSAs work similarly, but are designed for child care or elder care costs. With the rising cost of caregiving, this can be a huge financial relief for working parents and caregivers—and a strong differentiator for your benefits package.
2. Health Reimbursement Arrangements (HRAs)
An HRA is an employer-funded account used to reimburse employees for medical expenses and/or health insurance premiums. Unlike FSAs or HSAs, employees can’t contribute—but employers have significant flexibility in how much to offer, what qualifies, and whether funds roll over.
There are several types:
- QSEHRAs for small businesses without group health plans
- ICHRA for reimbursing individual plan premiums
- Integrated HRAs for supplementing traditional health plans
The key business advantage? You control the budget. You choose how much to reimburse, and unused funds can return to the company, helping manage costs year over year.
3. Health Savings Accounts (HSAs)
HSAs are available to employees enrolled in high-deductible health plans (HDHPs). These accounts are incredibly tax-efficient:
- Contributions are pre-tax
- Growth is tax-free
- Withdrawals for qualified medical expenses are tax-free
From a wealth-building perspective, HSAs are arguably more powerful than even a 401(k). The money rolls over year to year, can be invested, and stays with the employee even if they leave the company. Offering an HDHP paired with an HSA lets businesses reduce premium costs while still supporting employees’ long-term financial health.
Employers can choose to contribute to employee HSAs—again, using pre-tax dollars—to further enhance the value of the benefit.
4. Commuter Benefits
Commuter benefits are another underappreciated tax-smart option. Employees can set aside money (pre-tax) for transit passes, parking, or ride-sharing expenses.
While hybrid and remote work have shifted commuting patterns, these benefits still matter—especially in urban areas. And like FSAs, they reduce taxable income and lower employer payroll tax obligations, offering real value without a budget hit.
5. Lifestyle Spending Accounts (LSAs)
Unlike the other accounts here, Lifestyle Spending Accounts aren’t tax-advantaged by default—but they deserve mention for one key reason: customization.
LSAs let you offer after-tax reimbursements for things like:
- Gym memberships
- Wellness apps
- Home office equipment
- Continuing education
- Pet care
Though these benefits don’t come with tax savings, they can be a great companion to tax-advantaged accounts, rounding out your benefits offering and supporting holistic employee well-being. Plus, LSAs are highly flexible, which makes them ideal for supporting a diverse workforce with varying needs.
Why This Strategy Builds Wealth—for Everyone
Let’s be clear: raises are expensive. Every dollar of additional salary costs the business more in payroll taxes and future compounding raises. Tax-advantaged accounts let you increase compensation in a way that keeps more money in everyone’s pocket.
For employees, these accounts mean:
- Lower taxable income
- Direct savings on essential costs
- Long-term financial stability (especially with HSAs)
For businesses, they offer:
- Lower payroll tax exposure
- Greater control over benefits budgets
- Enhanced retention and recruitment appeal
These programs also signal a company culture that values financial literacy and long-term well-being, which matters deeply to today’s workforce—especially millennials and Gen Z.
Bringing It All Together: A Smarter Benefits Ecosystem
You don’t have to offer every tax-advantaged account under the sun to build a smart strategy. The key is to choose a mix that aligns with your budget, your team’s needs, and your company’s goals.
Pairing an HDHP with an HSA might work well for one business. Another might choose a QSEHRA and a dependent care FSA to support working parents. Still another might prioritize commuter benefits and LSAs to match a hybrid workforce.
The real takeaway? Modern benefits strategy isn’t just about throwing money at the problem. It’s about leveraging every financial lever at your disposal to provide meaningful value—in a way that also makes fiscal sense for your business.
Final Thoughts
Tax-advantaged accounts aren’t just HR buzzwords. They’re strategic tools that help small and mid-sized businesses do more with less, support employee wellness, and build wealth on both sides of the paycheck.
In an era where healthcare costs are rising and salaries aren’t always easy to increase, these benefits offer a smarter path forward. They’re proof that with a little creativity—and a lot of tax code know-how—you can build a benefits strategy that truly pays off.
