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What is a Personal Spending Account (PSA) and How Does it Work?

By: Benefits by Design | Monday June 12, 2017

Updated : Thursday July 23, 2020

Personal Spending Accounts (PSA)s have been growing in popularity in recent years as the dynamics of the workforce shift and employees crave more choice and flexibility.

With five different generations in the workforce, employees’ wants and needs are more varied than ever before, so offering a solution that lets employees decide what to spend their money on is worth considering.

What is a Personal Spending Account (PSA)?

A Personal Spending Account (PSA), also sometimes known as a Wellness Spending Account (WSA), is a spending account that provides additional health and well-being options beyond what is typically covered under a traditional benefits plan.

Personal Spending Account (PSA) Eligible Expenses

A PSA is not regulated, and so the options for coverage are almost limitless! When an employer sets up their PSA, they are able to decide what will be covered and set as many parameters (or as few) as they wish!

Here’s a few of some of the most common PSA eligible expenses:

These are only some examples. There is no set list of eligible expenses under a PSA because employers can ultimately choose to cover as little or as many things as they want.

How Does a Personal Spending Account (PSA) Work?

When setting up a PSA, an employer will set the dollar amount available to each employee to use for eligible expenses (as determined by the employer).

Let’s use a $500 PSA for this example.

In this example, the employee has a remaining $125.00 to spend for the year on other expenses deemed eligible by the employer.

Employers can choose to make the $500 dollars available to employees annually, or offer it in allotments given on a monthly or quarterly basis.

Is a Personal Spending Account (PSA) a Taxable Benefit?

Yes, a PSA is a taxable benefit and is considered part of an employee’s total compensation package. PSA contributions will need to be included on an employee’s T4 statement!

Looking for even more eligible expenses under a PSA?

Check out more eligible expenses for a PSA!