Because Ted and Heidi Nelson Cruz and the hubby and I have workplace-provided medical insurance, we get a chance in the coming weeks to decide exactly what type of coverage and other related workplace benefits we want for the coming year.
Yep, it's annual workplace open enrollment season.
Like many employer-provided plans, our options are part of a cafeteria plan, so named because they allow employees to select benefits from a menu of offerings.
Among those menu items are flexible spending accounts, or FSAs. With these accounts you can set aside pre-tax dollars to cover out-of-pocket medical and dependent (usually child) care costs.
Tax savings benefits option: Note the pre-tax reference.
The amount of money you decide to contribute to either account -- and yes, you can have both, but they are separate; you can't transfer money between medical and child care FSAs -- is automatically taken out of your paycheck before your tax withholding is calculated.
This includes not only federal and state income taxes, but also your FICA -- that's the Social Security and Medicare payroll tax -- amounts.
Don't believe me? Check out the Internal Revenue Service's Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans (updated for 2012 returns):
Flexible Spending Arrangements (FSAs)
A health flexible spending arrangement (FSA) allows employees to be reimbursed for medical expenses. FSAs are usually funded through voluntary salary reduction agreements with your employer. No employment or federal income taxes are deducted from your contribution. The employer may also contribute.
Just how much you can save on your tax bill depends on your income and the amount you put into an FSA. But any tax savings are welcome.
Watch out for FSA limits: There are, of course, some limits on FSAs.
Child care accounts are limited to $5,000. This annual cap for dependent care FSAs is for the whole family. So even if you and your spouse each have the option to open a child care FSA, your combined contributions cannot exceed five grand.
There's also a limit on medical FSAs. The $2,500 cap was added beginning this tax year as part of the Affordable Care Act, popularly -- or derisively if you're a Republican and/or are having trouble with the online insurance exchanges -- as Obamacare.
One thing that didn't change, however, is the use-or-lose rule. If you put more money in an FSA than you use by the end of your benefits year (that's year-end for most companies), then your employer gets to keep the excess. Some businesses offer a grace period until March 15 to use up last year's FSA money, but it's not a requirement.
So if you're considering an FSA during this open enrollment period, carefully calculate the amount of money you expect to need to cover co-pays, deductibles and treatments that your health care plan doesn't cover.
That's what the hubby and I (and presumably the Cruz family) will be doing over the next few weeks.
How about you? Have you heard from your employer about your 2014 benefits choices yet? Roger Wohlner, a CFP and personal finance blogger, cautions that it's not a good idea, especially with the changing health care landscape, to simply check the boxes on your enrollment material.
Take the poll below and let me and the ol' blog's readers know how you handle this important annual task. We'd also love to hear more of your health care and tax thoughts via your comments.
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