As an Advisor, it's important to understand how the taxes of spending accounts, like Wellness Spending Accounts (WSA) and Health Spending Accounts (HSA), impact your Clients' employees. Here’s a detailed look at how these accounts are taxed and what you need to know.
Province-Based Taxation
The taxes associated with WSAs and HSAs are based on the province listed on the employees profile, not the province where the company is headquartered. This means that personal tax obligations will align with the tax laws of the employees' province of residence.
HSA Taxation
Good news for employees: HSAs are non-taxable. This means that any reimbursements they receive through HSA for eligible health expenses do not count as taxable income. They can use these funds without worrying about an additional tax burden.
WSA Taxation
WSAs are treated differently. They are considered taxable benefits, similar to income. How this is managed depends on your client's accounting practices.
Real-Time Payroll Reporting: Some companies choose to report the taxable benefit from WSA reimbursements in real-time through payroll. This means the taxable amount will be included in the employee's regular payroll calculations and taxed accordingly each pay period.
Annual T4 Reporting: Alternatively, companies may choose to report the total taxable benefit on the annual T4.
Regardless of the method chosen, the taxable benefit must be reported for the tax year in which the employee was reimbursed.
Tax Exempt Employees (Indigenous Employees)
For Indigenous employees, tax exemptions may apply. However, we are unable to provide specific advice on these exemptions. It’s recommended that Indigenous employees consult with their corporate tax professional or accountant to understand how their individual taxes should be handled.
The application of any tax exemption to WSA claims is determined by the company, and employees should seek clarification from their corporate accountant on this matter.
myHSA's Tax Calculator
For your convenience, we have created a spreadsheet to assist with tax estimates!
You can find this spreadsheet here 👇🏼