Flexible Spending Accounts

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Do you have predictable healthcare or daycare expenses?  

If so, consider enrolling in a Flexible Spending Account (FSA).   This benefit is sometimes referred to as a “cafeteria plan” or Section 125 flex plan.    Section 125 refers to the United States Tax Code that allows this tax-favored benefit.

With an FSA, you can reduce your taxable income by the amount you pay out of your pocket for eligible healthcare and daycare expenses.

Medical FSA

You may set aside as little as $120 or as much as $5,000 per calendar year.   Whatever you elect is deducted from your paycheck evenly throughout the year on a pre-tax basis.   Then you file claims to reimburse yourself from your account (funded with your money) when you have eligible healthcare expenses.  Many employees choose to establish a Medical FSA to pay for contact lenses (if not paid under vision), eyeglasses, orthodontia, and over-the-counter drugs.    You can also use a Medical FSA to pay your out-of-pocket costs not covered by your medical or dental insurance, such as copays, deductibles and coinsurance.  

Dependent Care FSA

You may set aside as much as $5,000 per calendar year.   Just like a Medical FSA, whatever you elect is deducted from your paycheck over the year, on a pre-tax basis.    But this account is used to reimburse yourself for the childcare (daycare) expenses that are needed because both you and your spouse work.  Children must be under the age of 12.   Note that if you participate in this plan, you are not eligible to take the childcare credit for the same expenses when you file your income tax returns.    

Additional Flexible Savings Information & Forms

FSA’s are a great benefit.   By doing a little bit of planning, you can save on your taxes.   Consider this… if you are in a 30% tax bracket, a FSA is like saving 30% on health care and daycare expenses!

UAMS has adopted the extra 75-day “grace period” for both medical and dependent care FSA’s.   This means if you have any money left in your account as of December 31, you have until March 15 to spend it down – in other words, to incur an expense.  
 

As with most tax-favored benefit plans, there is a catch.    Once you elect to contribute to an FSA, you’re pretty much locked into it for the year.   Your election is only good for the year – you have to re-enroll to participate for the following year.   And any balance you have as of March 31 -- in other words, money you contributed that you haven’t gotten back – is forfeited.   So be careful in planning your eligible expenses for the calendar year.   Be conservative!

Click here for the PowerPoint presentation that explains how an FSA works and why this may be a good option for you in 2012.  

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