Flexible Spending Accounts (FSA) are savings accounts of sorts which allow an employee to contribute a specific amount per year, before taxes are withheld, for out of pocket Health Care and Dependent Care expenses. The maximum amounts allowed for contribution are determined by both your employer and federal policy. Based on their needs, employees may elect up to $2500 (per household) of their annual salary for healthcare and $5000 (per household) for dependent care expenses to be placed into an FSA on a pre-tax basis.
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There are three different types of accounts that can be offered by an employer through this program a Healthcare FSA, a Dependent Care Spending Account or a Limited Scope FSA. Contributions made to your FSA on a before-tax basis ultimately lowers your taxable income and may also decrease the amount of federal, state, local and FICA taxes you have to pay.
To take full advantage of your FSA, you should become aware of important factors that will assist in optimizing your investment into the account. This includes understanding when your company’s annual enrollment period begins, being aware of how your date of employment affects your eligibility to enroll, and also determining if any “qualifying event” (i.e. marriage, divorce, birth, or death of a dependent) triggers ability to participate.
Some employers set a deadline of Dec. 31 of each fiscal year to use the funds in a flexible spending account, but tax rules also allow employers to grant an optional two-and-a-half-month grace period. If you don’t spend the balance by then, you’ll forfeit it to your employer. Additionally, late last year, the Treasury Department announced new rules, which allow companies to permit employees to carry over as much as $500 that remains in their FSA at the end of a plan year, for use the following year. Employers have to choose between offering the carry-over option, or the grace period; they cannot offer both.
According to a March 2014 NYTimes.com article, here are some common questions asked regarding FSAs and new rules in place:
■ How do I know if I can carry over a balance from last year in my flexible spending account?
It’s important to check with your human resources department to learn your company’s policy, said Mr. Stover of Buck Consultants. Don’t assume that you can carry over a balance from last year, since companies aren’t obligated to allow it.
■ Does the new $500 carry-over option change how much I can set aside in my F.S.A. each year?
No, according to WageWorks. If your employer adopts the new option, you can still set aside up to $2,500 a year, even if you carry over $500 from the year before; that means you can have a balance of up to $3,000 available in a given year.
■ If I have a health savings account, does the March 15 grace period deadline apply to that balance?
No. Any balance in your H.S.A. automatically rolls over each year; there’s no use-it-or-lose-it rule attached to those accounts.
Again, and as noted by the Internal Revenue Service, there are several benefits to enrolling in and contributing to your FSA and these include:
- Contributions made by your employer can be excluded from your gross income.
- No employment or federal income taxes are deducted from the contributions.
- Withdrawals may be tax free if you pay qualified medical expenses.
- You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account.
For additional information surrounding an FSA, along with a complete listing of all FSA eligible expenses, please visit: http://www.flexiblebenefit.com/sites/default/files/docs/FSA_and_HSA_Eligible_Expenses-ER.pdf
Rashida Maples, Esq. is Founder and Managing Partner of J. Maples & Associates (www.jmaplesandassociates.com). She has practiced Entertainment, Real Estate and Small Business Law for 9 years, handling both transactional and litigation matters. Her clients include R&B Artists Bilal and Olivia, NFL Superstar Ray Lewis, Fashion Powerhouse Harlem’s Fashion Row and Hirschfeld Properties, LLC.
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What Is A Flexible Spending Account (FSA) & Are You Taking Advantage Of It? was originally published on hellobeautiful.com