Lifestyle Spending Account: What It Covers
A lifestyle spending account (LSA) is an employer-funded benefit for wellness and lifestyle expenses. Learn how it works, what it covers, how it differs from FSAs and HSAs, and whether you have one.
6 minute read
Short answer
A lifestyle spending account, or LSA, is an employer benefit that's not an FSA, HSA or HRA. It's funded by your employer, covers expenses your employer chooses (usually fitness, wellness or lifestyle categories), and is taxable as wages when you spend it. Unlike an FSA or HSA, there's no eligibility test, no letter of medical necessity, and no special tax treatment. Any fringe benefit you provide is taxable and must be included in the recipient's pay unless the law specifically excludes it.
LSAs show up in gym, studio and wellness-stipend benefits packages. Your employer decides what the money covers and how much you get. Most plans don't roll balances over, so check your plan document. If you leave your job, your access ends.
Definition and who is eligible for the account
A lifestyle spending account is an employer benefit, not a health account. Your employer funds it, decides what you can buy with it, and treats the money as taxable wages. It's separate from an FSA, HSA or HRA. The employer's plan document says what an LSA covers, and common categories include fitness, wellness equipment, classes and training.
Eligibility depends on your employer. Some employers give an LSA to all employees. Others limit it to full-time staff or certain departments. Your employer decides the rules. You won't have an LSA unless your employer offers one. Because LSAs are taxable fringe benefits, employers can use them to attract and retain employees. They're easier to administer than tax-advantaged accounts like FSAs or HSAs because there's no IRS eligibility test or medical review required.
Year end and job change
Most LSAs work like this: your employer gives you a dollar amount to spend in the year, and what's left at year end is usually gone. It doesn't roll into next year, and nobody pays it out to you. Whether your plan allows a grace period or run-out window is your employer's call, so read the plan document. An FSA follows Publication 969, which lets a plan offer a grace period or a carryover.
If you leave your job or change positions, your access to the LSA ends. You can't take the account with you or move the balance to a new employer. Your employer's plan says whether you get a run-out period to spend what's left.
How money goes in
Your employer puts money into the LSA. You don't contribute from your paycheck, and there's no pre-tax election like you'd have with an FSA or HSA. Because it's employer-funded and taxable as wages, it's reported as pay. That makes it simpler than an FSA, which runs on payroll deductions, or an HSA, which has contribution limits and requires a qualifying health plan.
Your employer can change the amount each year. Some employers tie the LSA benefit to performance, tenure or compensation level. Check with your benefits team to see how much your employer gives you and whether it changes year to year. Unlike HSA contributions, which you control within IRS limits, LSA amounts are entirely at your employer's discretion.
How money comes out: card, reimbursement, who files
Most LSAs work through a spending card or direct reimbursement. You either receive a prepaid card that you use to pay for covered expenses, or you pay out of pocket and ask for reimbursement. Your employer or benefits provider (often a third-party administrator) handles the reimbursement.
Unlike FSAs and HSAs, LSAs have no letter of medical necessity. You don't need to prove that a purchase is medically necessary or tied to a diagnosed condition. Your employer already decided what the money covers when they set up the account. If the expense fits the category your employer allows, you can spend it without any approval process.
Your administrator pays out once you send the receipt and details your employer's plan asks for.
LSA vs. FSA vs. HSA: How they differ
The main differences are who funds the account, whether it's taxable, what it covers, and how long the money lasts. An LSA is an employer perk for lifestyle expenses, while an FSA and HSA are tax-advantaged accounts for qualified medical expenses. A gym membership shows it: an LSA can pay for one with no letter if your employer allows it, while an FSA or HSA needs a letter. See FSA vs HSA and gym membership.
Feature | LSA | FSA | HSA |
|---|---|---|---|
Funded by | Employer only | Employee (pre-tax salary reduction) and sometimes employer | Employee, employer or both |
Taxable as wages | Yes, when you spend it | No (pre-tax) | No (pre-tax contributions) |
Money rolls over | Usually not; year-end forfeiture | Only if the plan allows it: a carryover up to $680, or a grace period | Yes, always |
Letter of medical necessity needed | No | Yes, for certain items like gym memberships | Yes, for certain items like gym memberships |
What it covers | Employer-chosen categories (usually fitness, wellness, lifestyle) | Qualified medical expenses under Publication 502 | Qualified medical expenses under Publication 502 |
Access after job change | No; account ends | Usually ends with the job; the plan sets any run-out window | Yes; balance stays with you |
Eligibility test | No; employer chooses | Yes; qualified medical expenses only | Yes; must have a high-deductible health plan (HDHP) |
Where Burst fits
Where a purchase needs a letter of medical necessity to be reimbursed (gym memberships, massage, fitness and recovery equipment, sleep products), Burst writes the letter and files the claim. $35, refunded if no letter is issued or the claim is denied. See how a letter works.
Frequently asked questions
Is an LSA the same as an FSA or HSA?
No. An LSA is an employer benefit funded by the employer and taxable as wages. An FSA and HSA are tax-advantaged accounts for medical expenses. The three are different types of accounts with different rules and tax treatment.
Can I use an LSA to pay for a gym membership without a letter?
Yes, if your employer's LSA covers fitness. An LSA doesn't require a letter because it's not tax-advantaged. If you have an FSA or HSA instead, you can also use it for a gym membership, but you'll need a letter from a clinician who names a diagnosed condition.
What happens to my LSA if I leave my job?
Your LSA ends when you leave, and you can't transfer the balance to a new employer or convert it to another account. Your employer's plan says whether you get a short window to spend what's left.
Does an LSA have a letter of medical necessity?
No. An LSA has no letter requirement because it's not tied to medical expenses or IRS rules. Your employer decides what's covered, and you spend it without approval or medical documentation.
Is my LSA taxable?
Yes. An LSA is taxable as wages, so it's reported as pay. That's different from an FSA or HSA, which are tax-free for qualified medical expenses.
Can I roll over my LSA to next year?
Most LSAs don't roll over, and unspent money is usually forfeited at year end. Your plan document says whether your employer allows a grace period or rollover.
How is an LSA different from other workplace benefits?
An LSA is a spending account your employer funds for specific categories (usually fitness or wellness). It's different from health insurance, life insurance or retirement plans. It's also different from an HSA or FSA because it's taxable and not tied to medical expenses.
Keep reading: Difference between HSA and FSA, Gym membership eligibility with an FSA or HSA, What you can buy with FSA funds, What you can buy with HSA funds, and all guides on this topic.
Sources
IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits (lifestyle spending accounts are taxable fringe benefits unless the law specifically excludes them)
IRS Publication 969 - Health Savings Accounts and Other Tax-Favored Health Plans (FSA and HSA account types, FSA carryover and forfeiture, HSA continuation after job change)
HealthCare.gov Glossary (definitions of FSA, HSA and HRA as distinct accounts)
