Lifestyle spending accounts: what they cover and how they're taxed

What an LSA usually covers

Because the employer writes the rules, every LSA is different. Common categories include:

• Fitness: gym or studio memberships, classes, home exercise equipment, race fees.
• Mental wellbeing: meditation apps, coaching, hobby or learning costs.
• Nutrition: meal planning services or cooking classes.
• Wearables and gear: fitness trackers, outdoor gear.
• Other life costs some employers add: childcare, pet care, commuting or remote work equipment.

Employers usually set a monthly, quarterly or yearly amount, and employees submit receipts or use a card. Whether unused money expires or rolls over depends on the plan.

Why LSA money is taxable

• The general rule. IRS Publication 15-B (2026) says any fringe benefit is taxable and must be included in pay unless the law specifically excludes it.
• Cash and gift cards. Publication 15-B says cash and cash equivalents, including gift cards, are never excludable as a de minimis benefit, no matter how small.
• Gym memberships. The athletic facility exclusion covers only a facility on premises the employer owns or leases and operates. Publication 15-B also says membership in a private country club or athletic facility isn't excludable as a de minimis benefit, however often the employee uses it.
• Through a wellness program, still taxable. In IRS Chief Counsel memo 201622031, the IRS concluded that cash wellness rewards, and gym fees that don't qualify as medical care, are wages subject to employment taxes.

So employers generally add LSA payments to the employee's taxable wages and withhold taxes. Some items, such as care that counts as medical care, may be payable tax-free through a health plan, an HRA or an FSA instead. Ask a tax advisor where each item belongs.

LSA vs HSA vs FSA vs HRA

Many employers pair an LSA with a medical account: the HSA, FSA or HRA pays for medical care tax-free, and the LSA covers wellbeing items those accounts can't. See what is HSA eligible, what is FSA eligible and what an HRA is.

How employers set up an LSA

1. Pick the categories you want to support. Ask employees what they'd use before you decide.
2. Set the amount and the period, and decide what happens to unused money.
3. Choose how people claim it: receipts, a card, or a vendor that runs the program.
4. Report payments as taxable wages through payroll, with withholding.
5. Keep it separate from your health plan. If rewards are tied to the health plan, HIPAA and ACA wellness program rules may apply. The Department of Labor lists reimbursing fitness center memberships as an example of a participatory wellness program.
6. Have a tax advisor or benefits attorney review the plan document before launch.

An LSA is not health insurance and not an HRA. It does not pay medical bills tax-free, and it is not an offer of health coverage for the ACA employer mandate.

Where Gabriel fits

Some employers want a benefit that puts care, not just wellness perks, within reach. Employers with 25 or more employees can add Gabriel for Teams, a care membership, alongside their health plan. It is a membership, not group health insurance and not an HRA or ICHRA.

For employees using HSA or FSA money, see are vitamins HSA eligible and is an Oura Ring HSA eligible for how medical and wellness purchases differ.