If you work for a company that offers flexible spending accounts (FSAs) for dependent care and health care, watch the mail for a pack of...
If you work for a company that offers flexible spending accounts (FSAs) for dependent care and health care, watch the mail for a pack of forms — these tax-cutting deals are too good to miss.
At most companies, fall is sign-up time for the coming year.
FSAs allow employees to set aside up to $5,000 a year for care of dependent children and adults. For health-care FSAs, there’s no federal limit on contributions, though employers can set ceilings.
Your contribution is automatically deducted from your pay each week and put in a special account used to reimburse you for qualified expenses.
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Most important: The contribution is subtracted from your taxable income, reducing your federal income tax. A $5,000 contribution could reduce that tax by $1,250, assuming a 25 percent tax bracket.
FSAs do have a drawback — the “use-it-or-lose-it rule.” Any money not used for an approved expense within the permitted period is forfeited to the plan.
The forfeiture rule did become somewhat more flexible this year, with a provision allowing employers, at their option, to grant a grace period for eligible expenses: Thus, if you do not spend everything in the account by Dec. 31, you can get reimbursed for expenses incurred as late as March 15 of the following year.
As with all things related to taxes, the rules on FSAs are complicated, especially when it comes to identifying eligible expenses. Your benefits or human-resources folks can give you the details.