If you work for a big company, chances are you have a Flexible Spending Arrangement plan available through work. If so, do you have any idea how they work? Many employees learned all they know about FSA plans from other employees, which is known as the blind leading the blind. So listen up, and I’ll give you the straight skinny about everything you need to know.
You (and your spouse, if he or she has a plan available at work) can contribute up to $2,600 to your health FSA plan from your salary in 2017. Why would you do that? For starters, contributions to your FSA aren’t subject to income taxes or payroll taxes such as social security and medicare taxes. That means a contribution of $2,600 to your plan will reduce your taxable income and save you money on your taxes. (I thought that would get your attention.)
Despite the many benefits of FSAs, most employees don’t take full advantage of flex-spend accounts, and the average contribution is only $1,427. The money you contribute to your FSA can be used for various types of expenses, such as dependent care and medical expenses. You can contribute up to $5,000 to your dependent care FSA in 2017.
So that’s the big picture. Here’s the fine print:
- To pay for dependent care from the plan, the person receiving dependent care must be your dependent, and if a child, must be under the age of 13 or incapacitated.
- In order to be reimbursed for your child care through your FSA, your child care provider must provide you with a taxpayer identification number (employer ID number or social security number).
- You can spend FSA funds to pay health insurance deductibles and co-payments, but not for insurance premiums.
- The major drawback? The funds you set aside must be used by the end of the year, or else they may be lost. Some employers allow a 2-1/2 month grace period, and some allow you to carry over up to $500 to the next year.
- And here’s the kicker: You must sign up for the payroll deduction during your employer’s open enrollment period, which is often late fall of the previous year.
Don’t worry about knowing tax laws and tax deductions. TurboTax will ask you simple questions about you and give you the tax deductions you are eligible for based on your answers.