Flexible Spending AccountsTo participate, your employer has to offer a plan. They will also set the contribution limits. Flexible spending account policies are set by both the IRS and the company that you work for. There are two varieties; medical flexible spending accounts and dependent care flexible spending accounts. Medical flexible spending accounts can be used for medical expenses such as insurance co-pays, uninsured treatments and over the counter medications. Cosmetic surgery is not included. The eligible treatments are determined by the IRS and can be found on their website. IRS Flexible Spending Account Policies and Eligible Treatments. Dependent care FSA’s can be used to hire someone to look after a child or other dependent that needs supervision while the employee is at work. These may include nursery school for children, day camps for kids and home health care looking after disabled dependents. FSA’s are taken out through payroll deduction on a pretax basis. Depending on the amount that you spend per year you can realize a considerable tax reduction. They are use it or lose it, if you do not use the money by the end of the tax year you lose your money. You will not get back the unused amount at the end of the year and you cannot roll it over to the next year. A change has been made in 2005 giving a grace period of 2 months and 15 days after the benefit year. This would be March 15 for those following a calendar year plan. This grace period is only good if the company amends their FSA documents to allow it. It is predicted that most will do so by 2006. The flexible spending account policies set by the Federal Government put a limit of $5,000 on the dependent care accounts; each individual company may also set limits to not exceed the Federal limit. Studies have shown that employees are forfeiting an average of $100 per year due to unused amounts over the one year time limit. You have to plan ahead to get the full benefit from these plans. Your tax savings can be eaten up by forfeited funds at the end of the benefit year. Look back over your medical expenses for the past year to assist you in determining the next years projected expenses. You can get an advance from a FSA. In other words, if an expense comes up that you do not have the funds in your account to cover, you can use the money that you will be putting in throughout the rest of the year. The money does not have to be in the account yet to be used. Medical flexible spending accounts may not be for everyone. They help those with large medical expenses like vision care, eyeglasses, orthodontic work or high medication costs the most. You have to keep track of your spending and request that the money be reimbursed to you from your account. Your company is not responsible for keeping track of your expenditures and reimbursing your money. If you do not do this you will lose your money at the end of the year plus any grace period. A dependent care FSA could save you a considerable amount of tax dollars as well. The savings on a $5,000 dollar dependent care FSA could be over $1,000. Flexible spending accounts are another option for those who are trying to reduce their expenses, get out of debt and get their finances back on track.
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