7 workplace benefits issues, tax & otherwise, to consider this enrollment season
Thursday, November 03, 2022
We're in the heart of the annual benefits enrollment season. Not only is the Affordable Care Act healthcare marketplace open for business, but older Americans are signing up for Medicare.
But a big segment of American workers rely on workplace-provided benefits to cover then health care and other needs.
If you're checking out your company's benefits, either to enroll for the first time or continue the perks you've enjoyed for a while, shop carefully. Companies are always tweaking their plans, some adding innovative options ranging from legal services to pet insurance to financial planning advice.
So don't just automatically re-up last year's coverage. Changes in your life could affect what you need. And definitely take note of the office-based benefits that also offer you some tax advantages.
Here are seven things to consider this benefits open enrollment season to make sure you get the best your employer has to offer.
1. Check on any changes. We're all busy, so it's tempting to take just a cursory look at what you have and what's being offered, especially when it comes to health care. Maybe the coverage you have now is still the best for the coming year. But maybe not.
Take the time to actually look at what’s being offered. Also consider what changes you or your family might experience next year. If it's not a major change that allows for you to reassess your benefits, you're stuck with them for the next 12 months.
Even if you do opt to keep your current coverage, look at what that means. Sure, many workplaces benefits tend to be much the same year after year. But premium amounts may have gone up. If you don't pay attention, you could end up with higher premiums or different coverage that you didn't expect.
2. Evaluate flexible spending account options. Flexible spending accounts, or FSAs, are common benefits for workers who opt for the more traditional workplace-provided health coverage. When you choose this option, a preset amount goes from your paycheck into the FSA each payday before taxes are figured. Those pre-tax FSA funds then can be used to cover eligible medical expenses, including copays and deductibles.
For 2023, the maximum FSA contribution is $3,050. But how much you put in requires some tax and medical prognostication. You don't want to underestimate the amount, but neither do you want to over-contribute.
Why the need for the benefits math? Even with some allowances to let you use up your FSA funds, such as rollovers to the next benefits year or grace periods, the accounts still are use-or-lose arrangements. Any unspent amounts in an FSA go back to your boss.
3. Investigate a high-deductible health care plan. Traditional workplace provided medical coverage means you and your company each pay a portion of the plan's cost. The business pays the larger portion, even though it sometimes doesn't seem that way when you look at the premium amount coming out of each paycheck.
That employee component is why some folks, when offered the choice, select instead a high-deductible health plan, generally referred to by the acronym HDHP. An HDHP's major appeal is that it has lower per-paycheck employees premiums in exchange for the higher deductible in its name.
For 2023, a medical insurance policy qualifies as a high-deductible plan if it has a minimum annual deductible of $1,500 for individual coverage or $3,000 for family coverage. That's a workable trade-off for many young and healthy employees.
If you do opt this open enrollment season for HDHP coverage, you'll also want to check into establishing an associated health savings account, or HSA. You put money into the HSA, where it grows tax-free. Then you can make tax-free withdrawals for qualified medical expenses. For 2023, you can put up to $3,850 into your HSA if you're a single taxpayer or $7,750 if the coverage is for families with high deductible health plans. There's also a $1,000 add-on for 55 or older HDHP plan owners.
Even better, the money that you put into an HSA is totally yours, not your employer's even if it's offered via your workplace, meaning it rolls over from year-to-year and if you change jobs, it still belongs to you.
You can read more about HDHP/HSA changes for 2023 in this previous post.
4. Don't forget about child care. With more workplaces going back to pre-COVID staffing arrangements, working parents again are looking for childcare. As every parent will attest, this can be an expensive proposition. So if your employer's benefits options include a dependent care account, check it out. It's essentially the family-related cousin to an FSA. Up to $5,000 can be put into a dependent care FSA.
And as with the medical version, you put pre-tax money into the dependent care FSA to pay for care of your youngster while you're at work. The qualifying costs that can be paid from a dependent care FSA include preschool care, before or after school programs, other private child care costs, and even summer day camp.
5. Compare your spouse's workplace benefits. If you and your spouse both have jobs that offer workplace benefits, don't make any decisions about either before checking on your better half's job offerings. You need to understand what each package offers, how benefits from the workplaces are coordinated, and know of any potential marital limits. This is particularly true if you have children and are considering a dependent care FSA.
As mentioned in benefits tip #4, an employee can contribute up to $5,000 in a child care account. But the tax code says that working parents' combined contributions to separate childcare spending accounts cannot exceed $5,000. Don't get stuck over contributing to this benefit.
As for healthcare, assess the options each spouse's workplace offers. Will you get lower premiums if you sign up with your lower-earning spouse's healthcare plan? Or will those premium savings be lost if you must pay higher deductibles or copays? Should each spouse sign up separately for his or her own workplace plans? If so, which one should cover the kids? If you go with one spouse's medical coverage for the full family, is that spouse's job and therefore insurance the more secure one?
6. Let your boss help with your retirement. How much we'll enjoy our post-work years depends in large part on whether we'll have enough money for the kind of retirement we want. A workplace 401(k) plan can help. If you work for a government agency or nonprofit, you'll likely be offered a 403(b) plan.
Regardless of which Internal Revenue Code section number is assigned to the account, these programs allow you to contribute to your golden years via a tax-favored workplace plan. Your employer also can contribute a percentage to your account. Make sure you put in enough to get your company's contribution.
Most private sector companies offer a traditional 401(k) plan, where your money goes in pre-tax and grows tax-deferred. When you eventually take distributions, those amounts are taxed at your ordinary income tax rate. Some businesses, however, also offer Roth 401(k)s, which are funded with your already taxed contributions. The benefit here, as with a Roth IRA, is that qualified withdrawals are tax-free.
Workplace retirement contribution plans generally aren't an official part of the annual open enrollment time frame because you usually can change your 401(k) choices on a payroll period basis. But since you're looking at all your other workplace benefits now, it's also a good time to evaluate your retirement plan options.
7. Note enrollment dates and deadlines. In addition to offering some tax-saving workplace benefits, your company and the IRS share something else. They are sticklers for deadlines. Whether you got your benefits enrollment info as a paper package, or your options are available on your company's employee website, double check the enrollment due date. If you miss it, you'll be out of luck for another year, or until you have a major life change that allows you to enroll or make adjustments.
The deadline also applies if you already have workplace benefits. Most companies allow them to roll unchanged into the next year if you don't take any action by the end of open season. While that's handy in many instances, if you were planning to make a change (or two or …), missing the date to do so means you'll be stuck with the prior benefits you wanted to tweak.
Many other options: These are just a few of the benefits, tax-advantaged and otherwise, that companies offer to keep their workers happy. Others include coverage of transportation costs, help in paying higher educational costs and even student loans, and general emergency savings accounts.
Be sure to check out every available workplace benefit thoroughly. Your decision could save you and your family both day-to-day expenses and tax dollars.
You also might find these items of interest:
- 10 states have their own child tax credits
- 5 tax considerations for young workers and their parents
- Tax-favored retirement saving options for freed-up student debt money
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