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What would you do if you had more money to spend during the year?

Sound familiar?

"It seems like the harder I work, the more I pay in taxes!"

"Child care and medical costs are so high nowadays, what can I do to save some money?"

We CAN'T tell you how to spend your money, but we CAN tell you how to SAVE it!

What is a flexible benefit plan?
Who is eligible?
Why should I participate?
Dependent care  plan details

What is a flexible benefit plan?

A flexible spending account is a way for you to set aside money through payroll deduction to pay for out-of-pocket medical expenses before taxes are withheld.

This will save you approximately 25% in Federal, State, and FICA taxes!
(For every $4.00 you spend, you save $1.00!)

These expenses include certain group insurance premiums, out-of-pocket expenses for medically necessary treatment, and dependent care expenses.

Who is eligible?

If you are a full-time employee, in most cases you are eligible.  Check with your employer for eligibility requirements.

Why should I participate?

In order to claim your medical expenses as a deduction on your federal tax return you would have to incur over 7.5% of your gross income in medical expenses.  Unless there is a catastrophic event, most people do not come close to reaching this large percentage in order to claim these expenses as a deduction.

By using your flex plan to pay for your out-of-pocket medical expenses, (expenses not covered by your insurance) you save approximately 25%  for eligible expenses because tax is not taken from that money, and you are not taxed when you receive your reimbursement.

The current Dependent Care allowance is $3,000 for 1 child, and $6,000 for 2 or more children if you want to claim this as a deduction on your taxes.

By running your dependent care expense through the flexible benefit plan, you can claim up to $5000 for 1 or more children.

Most likely if you earn more than $25,000 per year you would benefit significantly by participating in this plan.

(You should use the DEPENDENT CARE COMPARISON worksheet to determine whether it is better for you to make your claim on your taxes, or claim your dependent care expenses through your flex plan.) 

Dependent care plan details

The Internal Revenue Service has set the maximum annual contribution at $5,000.00 per family, if your tax filing status is single, married filing jointly, or head of household.  If you are married and filing separately, you are only allowed a $2500.00 annual contribution to the plan.  Some guidelines related to dependent care expenses are listed below:

• Dependent care expenses while you are working (if married, both you and your spouse must be working, going to school, or disabled)
• The amount to be reimbursed must not be more than the lesser of you and your spouse's earned income.
• The day care services may be provided in your home or another location, but not by someone who is your minor child or dependent for income tax purposes.
• Services must be for the physical care of the child(ren), not for education, meals, etc.
• The dependent care plan may be used for dependent children under the age of 13, or for care of a spouse or dependent who is incapable of self care.  (such as an elderly parent)
• The Tax I.D. # of the day care provider is required before reimbursement can be made.