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If you are lucky enough to work for a company that offers Flexible Spending Accounts, be sure to take advantage of this great benefit that will put more money back into your pocket. If you or your dependents have any medical or dental expenses not covered under your health insurance during the year, you can use this benefit to pay for them with pre-tax dollars. Simply figure the amount of out-of-pocket medical expenses you will have for the year, sign up for your company’s FSA by the deadline, save your receipts and submit them for reimbursement as you incur them.
This will save you on taxes. In order to pay fewer taxes, you have to reduce your taxable income. Participating in an FSA can help you achieve this because it’s deducted from your paycheck before your taxes are calculated. This reduces your taxable income and therefore reduces the taxes taken from your paycheck.
Examples of some medical expenses you can submit:
Co-pays for office visits
Dental check-ups & fillings (but not cosmetic dental work)
Prescriptions
Eyeglasses and contact lenses, including cleaning solutions
Certain over the counter medicines such as for cough & cold
Be sure to save your medical receipts during the year, and submit them regularly instead of waiting until year-end. This puts more money back in your pocket each month.
The best advantage for using an FSA is that you can begin to use the balance before it has been deducted from your paycheck. One year I had extensive dental work done on the third of January, submitted the receipt and got my reimbursement before it had even been deducted from my first paycheck of the year!
One caveat here- make sure to come up with a realistic dollar amount for your medical expenses when you sign up. With an FSA, you are allowed to submit the total amount you elected before it has been deducted from your paycheck, but you will lose those amounts you don’t use. This is a very important point to understand- if you cannot spend your balance by the end of the year, you cannot carry that balance over into the new year and you forfeit that money.
Another important tip to know- if you terminate your employment during the year, you can only submit expenses that were performed up to your last date of work. For this reason specifically, I recommend that you schedule your medical visits early in the year so you can begin to reap the benefit. If you were to be laid off during the year and hadn’t used up your balance, you wind up losing the money that was left in your account.
Find out if your employer offers Flexible Spending Accounts as part of their benefit package, and plan to take advantage of this terrific benefit next year. Ask your HR department for details.
Kathy Swann has over 25 years experience in office administration, payroll and Human Resources. Her e-book "How to Win When You Lose Your Job: A Handbook for Those Soon to Be Unemployed” was written to help employees understand what benefits are available to them should they lose their job through no fault of their own. Purchase this e-book at www.loseyourjob.net.
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