What Is A VEBA And How Can It Help Me?
A VEBA is a tax exempt irrevocable trust arrangement in which funds are deposited by the employer on behalf of the employee.
Mar 24, 2014
A common question we hear when we are speaking with clients and their employees is “What is a VEBA?”
Simply put, a VEBA is a tax exempt irrevocable trust arrangement in which funds are deposited by the employer on behalf of the employee. Once funds are deposited, they can be used for current or future out-of‐pocket health care related expenses.
The follow up question is always “What can I do with a VEBA?” There are a number of ways a VEBA can enhance your benefit plan, but the two most common uses of a VEBA are:
VEBA Combined With An Active Health Plan
As an active employee, an employer can establish a VEBA to work with your health plan. Employees can use money in their VEBA account to pay health plan deductibles, co-pays and co-insurance, as well as prescription drugs and some insurance premiums. If you do not spend the money by year-end, balances will be rolled over, allowing you to accumulate funds over time and save for health expenses in retirement or post-employment. You will be able to use the VEBA account to pay for eligible medical expenses, including the premium cost for continuing employer-provided health coverage or Medicare coverage. Medical expenses reimbursed by the VEBA account include the cost of deductibles, co-pays or co-insurance and prescription drugs.
Post Retirement VEBA
With a post-retirement VEBA, an employer can contribute funds to help you, your spouse and eligible dependents pay for medical expenses after you are no longer employed. These expenses can be retiree medical premiums and long term care premiums. Your employer can make contributions throughout your working life or convert accumulated severance pay, sick pay and similar longevity‐based benefits into contributions to your VEBA account. VEBA assets are protected from the claims of creditors.
For a participant in the VEBA, the funds contributed, earned and withdrawn are TAX FREE. When an employer contributes funds into the VEBA they do not pay the FICA or local payroll taxes.
Following is an outline of the tax benefits of a VEBA:
Taxable Distribution
| Deposit | Less Federal Income tax(assuming a 25% tax bracket) | Less FICATax (7.65%) | Total Paid Taxes | Total Received Amount |
| $25,000.00 |
$6,250.00 |
$1,912.50 | $8,162.50 | $16,837.50 |
| $50,000.00 |
$12,500.00 |
$3,825.00 | $16,325.00 | $33,675.00 |
With A VEBA Plan
| Deposit | Less Federal Income tax(assuming a 25% tax bracket) | Less FICATax (7.65%) | Total Paid Taxes | Total Received Amount |
| $25,000.00 |
$0.00 |
$0.00 |
$0.00 |
$25,000.00 |
| $50,000.00 |
$0.00 |
$0.00 |
$0.00 |
$50,000.00 |
Want to learn more about our VEBA plans? Read more on our website here!