An employee should plan ahead for the effect of payroll reductions during their participation in the Health Care Account. They will have expenses even though they also will have payroll reductions for the account. Depending on the time of the month when a claim is received, it could take up to three weeks to receive a health care reimbursement. A federal and state income tax deduction is available for health-care expenses, but it may be to the employee's advantage to use the Health Care Account. Federal tax regulations do not allow the employee to take the deduction and use this account for the same eligible expenses.
All expenses reimbursed through the account are on a pre-tax basis.
Expenses are exempt from tax. You will not pay taxes on them at a later date. Only expenses that exceed 7.5 percent of adjusted gross income are deductible, and only if deductions are itemized. There is no Social Security tax on pay deposited to this account. Aside from a Health Care Spending Account, no other special account helps to budget for expected health-care expenses or save taxes on these expenses during the year.