What is a Flexible Spending Account? A flexible spending account (FSA) is a benefit that employers offer to employees, which allow a fixed amount of pre-tax wages to be set aside for eligible expenses. The expenses depend on the different types of FSA accounts:
- Dependent care flexible spending account
- Child care flexible spending account
- Health care flexible spending account
- Cafeteria plans ¿ Plan which allow employees to choose between two or more benefits
What are the Advantages of Having a FSA? FSAs allow employees to make pre-tax salary contributions to pay for eligible expenses, which actually helps to make these out-of-pocket expenses more affordable. Since the contributions are taken out before wages are taxed, it reduces an employee¿s taxable income, which in effect increases an employee¿s disposable income. The bottom line is that an employee can save up to 20-40% on covered expenses to result in immediate tax savings on items like health insurance premiums, non-reimbursed medical, vision and dental, and child/dependent care expenses. Plus, FSAs are tax free from the first dollar contributed, so employees do not have to meet a minimum amount to receive the tax advantage. Therefore, employees save on: Can Flexible Spending Accounts Be Changed? Flexible spending accounts can be changed since each plan year is separate from the other. That means an employee must re-enroll in the FSA each plan year and make any elections for that year. This allows for employees to have the opportunity to make different elections each year, depending on the type of FSA as well as the amount that is set aside for the account. Should I Consult With a Lawyer Regarding My FSA Enrollment? Because tax law is difficult to understand, seeking the advice of an experienced tax attorney can help you understand current tax law, and how a flexible spending account can affect your income taxes. |
