Flexible Spending Account

[jim s]

can someone shed some light on this subject as to what advantage there is to open this account, i know its taken out of your pay check before taxes, but how does it show on your w2 or 1099 and how does it work for a tax deduction on your schedule A. thank a bunch...jim s

[outwest]

Here are the basics

1. The money comes out of taxable pay for BOTH income tax and FICA. First big advantage of the flex plan.
2. Because the money is deducted before taxes, it reduces W2 amounts. There is no other reporting to the employee.
3. There is no Sch A reporting.
4. Expenses turned into the Flex plan may NOT be used on the Sch A. This is a huge advantage as there is no 7.5% threshold.

Doug

[RLymanC]

Fsa

From the Aetna web site:

Effective January 1, 2008, terms of your health care debit card will change when shopping at approved merchants, such as grocery stores and discount stores. These merchants are now required to have inventory systems which can identify health care purchases of prescriptions and/or over-the-counter items each time you use the card. Many stores have now become certified to provide this service.

[jim s]

flex saving account

thank you Doug, is there a limit that you can contribute to this account and is there a fee that the people holding the money can charge (service charge) some one told me if you don't use the money you loss the balance that is left in the account

[outwest]

In general..

There is no legal limit but as a practical matter most plans limit the election to $5000 or so.

I haven't seen service charges, keep in mind that the employer/sponsor also saves employment taxes which helps offset the administration. Also fringe benefits such as this reduce employee turnover.

The use it or lose it rule means unused funds in the account revert to the plan and generally allocated to evenly to every participant. As a practical matter this is rare for three reasons: 1. If aware of the rule, most participants are conservative in the election 2. Recent rule changes allow a grace period for expenses past the plan year. and 3. almost everyone can schedule a eye exam, dental work, new glasses, etc to use up the balance.

[jim s]

flex spending account

doug,; thank you very much for your input, a flier has been sent around to some of my clients and are asking me for my advise i just wanted to make sure that what i was telling them was the right thing, this is a web sight on the bottom of the page www.cpa125.com, it sounds like a cpa went into another line of work thanks again...jim s

[joanmcq]

Another nice thing is that NONprescription medications such as aspirin & allergy meds qualify as medical expenses for the FSA.

[taxmandan]

OTC may be allowed

Another nice thing is that NONprescription medications such as aspirin & allergy meds qualify as medical expenses for the FSA.

The expense cannot be for personal/cosmetic or general health purpose unless a doctor prescribes the OTC stating the medical need.

Acne treatment/medication
Dental fluoride treatments
Dietary supplements (ie: vitamins)
Fiber supplements
Herbal supplements
Nose strips for proper breathing
Orthopedic inserts
Sleeping Aids
Snoring cessation aids and medication

These require a prescription.

[Lion]

Fsa

My husband's plan charges $4.50/month to administer, a bit steep I thought. But, when I ran the numbers with the charges and with our tax rate, we still do better making use of the FSA. Even though it's use it or lose it, you just have to be within your combined federal and state tax rate to come out ahead even if you don't spend every penny (the rest would've gone to Uncle Sam and your state anyway and not to your pocket). And, the lower AGI that results from using the FSA means lower thresholds for things like unreimbursed employee expenses (my hubby's a teacher and has lots of those!) and tuition deductions and...

[veritas]

use it or lose it

See page 13-31 in the TaxBook.

There is a 2 1/2 month grace period beyond the end of the plan year.