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Re: does anybody know . . .

Posted by akc on November 19, 2001, at 13:32:24

In reply to Re: does anybody know . . . » KB, posted by Greg on November 19, 2001, at 13:21:55

KB,

What Greg is talking about is a flexible spending account. It is a great thing if your company offers it, because it allows you to use pre-tax dollars up-front. Before you can deduct any medical expenses, you have to hit a 7.5% floor. That is, take your yearly income, multiply it by 7.5% and straight away, you don't get to deduct that amount. It is very hard to hit that floor. With a flexible spending account, you can use pre-tax dollars (kinda of a deducting before the fact) to pay for your medical costs. You can do the math both ways, but it will be rare that you won't want to take advantage of a flexible spending account. Getting tax free dollars up front is usually a winning situation.

Each company has total flexibility on how it designs this. Greg's company allows up to $500 a month. Mine allows $5,000 per year. There is no tax code limit on how large or small the amount the employer must offer. One thing is that you can spend ahead. I used up my $5,000 budget by the beginning of October, thought the $5,000 won't be completely withheld until the end of December. If I had left employment in October, my employer would have been SOL. On the other hand, if I had not spent the entire amount by the end of December, I lose out -- the employer gets the difference. So if your employer offers this, you have to make sure you budget carefully -- the last thing you want to do is lose the money. It cannot be rolled over from one calendar year into the next.

The final point is that if you use a flexible spending account, those expenses cannot be counted towards your floor in determining your deductible expenses come tax time. For instance, if you had $1,000 in flexible expenses, and $3,000 in other expenses, you can only use the $3,000 in determining whether you meet the rules found in Pub. 502 for getting a deduction. Otherwise, the IRS will say you are getting a second bite at the apple (that first $1,000 was already tax free).

Hopefully, this was not too technical. Any questions, please ask.

akc

> KB,
>
> Along with akc's input, you might want to also check to see if your company has a program to assist you with this. My last company had a program called a Healthcare Reimbursement Account. It allowed up $550 (I think) to be deducted, pre-tax, per month to used towards medical expenses. This is probably dependant on the size and type of company you work for, but more and more companies are doing this. If your company has one, you should be able to get the info from your HR or benefits dept.
>
> Good luck!
> Greg


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