Don't Mess With Taxes

Confused about your workplace benefits options during open enrollment? Your answers to the following questions could help. (Photo by Priscilla Du Preez 🇨🇦 on Unsplash)

Millions of U.S. workers are now deciding what workplace benefits they want in 2024.

Many during this annual open enrollment period simply re-up the options they chose last year.

I get it. It's easy. But you could be costing yourself, both in out-of-pocket cost and tax savings.

So, before you make a final decision, ask yourself the following questions.

1. Will your company help your repay your student loan?
College costs and the debt that students and their families go into to pay for higher education continues to be a hot financial and political topic, especially since paused repayments have resumed.

It's also an issue for companies that offer employee benefits.

Some businesses have expanded their traditional educational assistance programs. These programs have been available for many years, with workers using them to pay for books, equipment, supplies, fees, tuition, and other education expenses. The amount that can be provided tax-free to workers is $5,250 per employee per year.

Now, however, there's a temporary option, available through 2025, that lets employees use the funds to pay student loans. The Internal Revenue Service has been working to spread the word among businesses and employees about this option. The student loan payment workplace perk help companies attract and keep personnel in this tight labor market.

If you're paying off college costs, find out whether your employer's educational assistance program includes the loan payment option. If it does, don't miss out on this chance to get payment help from the boss.

2. Will a high-deductible health care plan work for you?
Medical coverage is the main workplace benefit for most employees. While workers are glad to have health insurance, premium costs are still a concern.

If you have family coverage, the amount taken out of each paycheck can be substantial. In that case, if your employer offers a high deductible health plan, it's worth the time to check out the option, often referred to by the acronym HDHP.

The major appeal of an HDHP is that it has lower per-paycheck premiums in exchange for the higher deductible in its name. For 2024, a medical insurance policy qualifies as a high-deductible plan if it has a minimum annual deductible of $1,600 for individual coverage or $3,200 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.

The HSA contribution maximum for 2024 is $4,150 if you're a single taxpayer or $8,300 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.

3. Would you benefit from a health care flexible spending account?
There's a similar tax-favored medical payment account for workers who opt for traditional health coverage. Flexible spending accounts, or FSAs, allow you to put preset amount from your paycheck into the FSA each payday before taxes are figured.

While you will lose some of your paycheck to the money going into the FSA, your taxes will be reduced a bit, so the bottom-line pay period change tends to be nominal. The tax benefits really come in handy when you get to use those pre-tax dollars to cover eligible medical expenses, including copays and deductibles.

The Internal Revenue Service should soon release 2024 inflation adjustment numbers. Until then, you can use the 2023 amounts as a base, with the hope it will be bumped up a bit. That's a maximum FSA contribution of $3,050.

Regardless of the eventual 2024 FSA limit, deciding how much to put into an FSA 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 are still use-or-lose arrangements. Any unspent amounts in an FSA go back to your boss.

4. Could a child care spending account come in handy?
More companies are trying to be family-friendly, especially after employees got used during the COVID-19 pandemic to working from home and being able to deal with their children's needs.

One long-time workplace benefit has been dependent care account. It's essentially the benefits cousin to an FSA. You put pre-tax paycheck contributions of up to $5,000 into the account and use them to cover some of the care costs.

The qualifying costs that can be paid from a dependent care account include preschool care, before or after school programs, other private child care costs, and even summer day camp.

5. Are you saving enough for 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 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 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.

6. Does your spouse also get workplace benefits?
If you and your spouse both have jobs that offer workplace benefits, don't make any decisions about either job perks before checking with each other. You need to understand what each package offers, how benefits from each workplace are coordinated, and know of any potential marital limits.

This is particularly true if you have children and are considering a dependent care account discussed in question 4.

Even though each parent's workplace allows them to contribute up to $5,000 in a child care account, 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?

Yeah, sorting through dual workplace open enrollment options is one of those relatively worse times you agreed to in your vows.

Evaluate before keeping or changing benefits: As noted at the top of this post, it's tempting during open enrollment to simply sign up for the benefits you already have in place.

But it's to your benefit, pun intended, to take the time to actually look at what's being offered for the coming year. Companies do change their benefits plans. And it's a pretty safe bet that at least your portion of healthcare premiums will go up next year.

Your life also might have changed. You got a raise, your oldest child is headed to college, you have a new baby, you spouse is working part-time now. All these could affect the type of workplace benefits you need or need to maximize.

If you don't account for them now, you could be stuck all next year with benefits that don't really work the best for you.

You also might find these items of interest:

• W&M approves HSA enhancements
• IRS delays Roth workplace retirement plan catch-up requirement to 2026
• IRS announces high-deductible health plan, HSA & HRA inflation bumps for 2024

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