Flexible
Spending Accounts --- Your Path to Super Tax Savings
Flexible spending Accounts (FSA), also known as Cafeteria Plans,
and Section 125 Plans offer employees the chance to save over 40%
on orthodontic costs. Chances are your employer already sponsors
such as plan. It’s a benefit that costs your employer nothing.
In fact, it actually saves them money.
Here’s
how it works
Before the beginning of each calendar or benefit year, you designate
how much of your paycheck is to be redirected for uninsured healthcare
costs. This redirected amount is pretax! During the year you submit
your bills that will then be reimbursed out of your account. For
example, if your employer allows a maximum $3,000 set aside, you
may submit bills during the year up to a total of $3,000 for reimbursement.
The one catch is you must spend each year the entire amount set
aside in your account. You cannot carry forward to the next year
any unused amounts nor have those amounts repaid to you as salary.
This is known as the “use it or lose it” provision.
Here’s how the savings work. Since the dollars set aside from
your paycheck are pretax dollars, you save on social security taxes
(7.65%), federal income taxes (28%) and state income taxes (8 %),
for a total of 43.65 %. Your employer saves the matching social
security taxes - a plus for them.
Another advantage of Flexible Spending Accounts is that the timing
of the reimbursement can precede the withdrawal from your paycheck.
For example, if you incur orthodontic fees of $3,000 in February,
you could be reimbursed the entire $3,000 even prior to the amounts
being withdrawn from your paycheck during the year. This acts like
an interest free loan from your employer.
What
to do now
Check with your employer to determine the maximum amount that you
can set aside each year from your paycheck. Be sure to maximize
this year’s amount. Check with our office in determining the
amount and timing of your expenses. Planning is key to maximizing
this important benefit. We are happy to work with you in helping
you understand Flexible Spending Accounts and coordinating the benefit
with your employer. If your employer doesn't have a Flexible Spending
Account, let us know. We will be happy to send along a brochure
explaining how it works. This is our effort to help you receive
maximum value from your employee benefit plans.
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