What Is a Lifestyle Spending Account (LSA)?

Companies may provide a lifestyle spending account (LSA) to reimburse employees for approved wellness purchases that fall outside their standard medical benefits. The employer controls the program, including the amount offered and which expenses qualify.

A financial advisor can help you create a financial plan for your health and wellness needs.

What Is a Lifestyle Spending Account?

With an LSA, a company sets aside money that workers can claim for approved purchases, which may include fitness, financial wellness, or other personal well-being costs.

HSAs and FSAs are two other workplace benefits employees may use for eligible healthcare expenses. Both of those accounts operate under a fixed list of qualifying medical costs set by federal tax law. LSA plans skip that framework entirely with each company building its own list of qualified expenses, so two employers offering an LSA could cover almost nothing in common.

Which purchases qualify depend on the company’s plan. Coverage might extend to fitness memberships, exercise equipment, child care, financial wellness services or educational programs. Employees should check their plan documents before making a purchase because coverage can differ significantly among employers.

LSA vs. HSA

While both LSAs and HSAs can help pay for certain health and wellness costs, the accounts operate under different rules.

An HSA comes with federal eligibility requirements and annual contribution limits. For 2026, you can contribute up to $4,400 with self-only coverage or $8,750 with family coverage. Participation generally requires an HSA-eligible insurance plan, usually a high-deductible health plan.¹

Money taken from an HSA for qualifying healthcare costs can receive favorable federal tax treatment. Using the account for other purposes can result in taxes and, depending on your age and circumstances, an additional tax penalty.

An LSA is not subject to the HSA rules governing contributions and qualified medical expenses. For an LSA, the company determines how much money it will make available and what the rules are for workers seeking repayment for a purchase.

Lifestyle Spending Account: Eligible Expenses

The purchases you can submit are based on the terms of your company’s LSA. As a result, the range of covered costs can differ from one workplace to another.

Depending on those terms, available uses could include costs associated with exercise, food, dependent care, clothing, coaching or education.

Fitness center fees
Vitamins and other dietary products
Home workout gear
Food purchases
Child care costs
Workout apparel
Personal coaching
Classes and professional learning
Recreational gear

Before spending your own money, review the benefit information provided by your company to confirm that the purchase can be submitted. This can help you avoid paying for something that won’t qualify, leaving you holding the bill.

Lifestyle Spending Account: Taxes

LSA payments can have tax consequences for employees. LSAs don’t fall under any of the IRS code sections that let HSA or FSA reimbursements skip payroll taxes, so most LSA payouts show up as ordinary taxable wages instead.

Say your company deposits $1,000 into your LSA for the year, and you later submit a $500 receipt for a fitness expense that gets approved. When the payment is taxable, that $500 is generally reflected in your wages rather than receiving the tax treatment available to a qualified HSA distribution.

The tax treatment can affect the benefit’s actual value to you. A $500 taxable reimbursement still offsets a $500 expense, but taxes associated with that additional compensation reduce the amount of financial benefit you ultimately receive.

Advantages of an LSA

Potential benefits of an LSA include:

Funds to use specifically on wellness activities
Flexible spending opportunities
Employer-funded reimbursements that can reduce some of your out-of-pocket costs

Employees may benefit from having another source of money for expenses they otherwise would pay themselves. Employers, meanwhile, only pay out funds employees actually claim, so unclaimed balances typically stay with the company rather than becoming money the employee is owed.

The spending possibilities of an LSA can be exciting for employees. But employers also enjoy the benefit of only having to cover the cost of used funds. So, if an employee doesn’t spend their allocated LSA funds, the company can hang onto that money.

Disadvantages of an LSA

As with all financial products, there are also some disadvantages of an LSA to consider, including:

Taxable income for reimbursements that do not qualify for a tax exclusion
Limitations set by the employer

An LSA may provide less value when the covered categories do not match expenses you already expect to have. Taxable reimbursements can also increase your wages, while unused benefits may expire under the employer’s plan rather than carry forward for your future use. As an employee, you’ll add to your taxable income when you spend funds from your LSA. Depending on your company, you might not find the eligible expenses align with your personal lifestyle and wellness needs. A financial advisor can also help you evaluate your company’s LSA and determine if it represents a meaningful part of your compensation.

Bottom Line

Wooden blocks labeled "employee wellness program."

A Lifestyle Spending Account can help cover expenses that fall outside traditional health benefits, but its value depends on your employer’s rules and how you use the money. Check which purchases qualify, note reimbursement deadlines and consider the tax treatment before spending. Using LSA funds for costs already in your budget can help you capture the benefit without creating unnecessary expenses.

Tips for Health Savings

A financial advisor can help you put a financial plan into action for your health needs. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
A Health Savings Account is another type of account that you may be able to set up through your employer, if you have a high deductible health insurance policy.