Tax Tip: Sign up with an FSA plan and make sure to use it all up by the end of the year
According to a recent online survey of American adults, 86% had at least one mistaken notion about FSAs or the pre-tax payable Flexible Spending Account.
If you are an employee who enjoys the benefit of having an FSA account, then you should be aware that all unused money set aside by your employer for your use will be lost by the end of the year. Come January 1, your FSA account is subject to new terms by the IRS. Though there are companies who provide a three-month grace period. It”s a good idea for you to check with your FSA provider to see if you fall under this category.
It is therefore wise for you to increase your stock of health medicines if your Flexicard still has a significant amount of unused funds. Unlike the health savings account (HAS) or the health reimbursement account (HRA), unused funds for these accounts won”t be lost once the covered year is over.
FSAs are one of the offered health benefits plan by a US employer which is typically classified under the known “cafeteria plans” of employer-to-employee benefits. The most common methods of using your FSA account is through filing a paper form or having a debit card, commonly known as the Flexicard.
FSAs are a popular option for employees simply because all the contributions made in your name are tax-exempt. The caveat however, is you must use up all your available funds by the end of the covered year for you to truly enjoy the benefits of it being tax free. It does not make sense for you to be frugal with your FSA account. All unused credits on your name will just be re-set and eaten by the government by the start of the next year. So before the end of your FSA covered period, it”s time to have your annual medical exams and dental care, which are covered by FSA.
Be aware though that after January 1 of this year (2011), over the counter (OTC) medical items with no doctor”s prescriptions will online casino au not qualify as an acceptable medical expense covered by your FSA account. However, insulin dependents are not required to present a proof of a doctor”s prescription to enjoy the benefits of their FSA account.
The benefits of having your FSA account according to IRS are:
•Dedicated contributions by your boss should be deductible from your gross income.
•Federal income and employment taxes are subtracted from the contributions.
•Zero tax fees for withdrawals on paid qualified medical expenses.
•You can use your FSA account for emergency purposes on qualified medical expenditures even if you haven”t contributed enough funds on it yet.
FSA accounts allow you to contribute to qualified expenses (like medical costs coverage) on a pre-tax basis. This allows you to have a bigger take-home income, with the case of an FSA account, your payment for health-related expenses is tax free. For every dollar you drop on your FSA account, you save an average of 25 to 49 cents. These figures are dramatic and huge, so it is great if you recommend a loved one or a friend to take advantage of such a program if their companies and employers do offer them.
A great example for you on just how great an FSA account is, if your income profile falls on the 25 percent federal tax bracket, dedicating a sum of $3,000 in FSA to pay for you and your family”s health costs should give you a total savings of $750.
FSAs are great if you calculate that you would need continuous medical care on certain health conditions, such as a bad back (chiropractic care is covered), recurring eye problems, diabetes problems, and others. Check with your employers if they offer FSA coverage, chances are they already do. FSAs are increasingly becoming popular for business owners who are seeking ways to reduce the cost of healthcare plans for their employees. Independent contractors and employees do not qualify for the FSA plan.