Post Content

 

Employees and Employers Save on Taxes with These Options

Guest Editorial by Cindy McGrath, Communications Director, Commonwealth of Massachusetts Group Insurance Commission

Fall means open enrollment time for Flexible Spending Accounts (FSA), a tax savings shelter for employees and employers.  If you are an employee of a company that offers these benefits, you can save money by enrolling in one of these tax-sheltered accounts for the 2014 calendar tax year.  The amount of tax savings depends on your election amount and tax bracket, but on average participants save $250 for every $1,000 contributed.

Flexible Spending Accounts usually come with two options.  The most popular option is a Health Care Spending Account.  With this option, participants pay for out-of-pocket health care expenses — such as office visits and prescription drug copays, medical deductibles, prescription eyewear, and orthodontia and dental benefits – on a pretax basis, thereby lowering their tax liability.

The other option, a Dependent Care Assistance Program, allows participants to pay for qualified dependent care expenses for a child under the age of 13 and/or a disabled adult dependent on a pre-tax basis.  Eligible expenses include day care, after-school programs, elder day care and day camp.

Each year during open enrollment, participants are given the opportunity to estimate the amount of money they expect to spend on out-of-pocket health and/or dependent daycare services for the upcoming year.  Current maximum amounts set by the federal government are $2,500 per employee for the Health Care Spending Account and $5,000 per family for the Dependent Care Assistance Program.  The contribution is prorated over the course of the year and deducted from the participant’s paycheck. When the participant incurs out-of-pocket health and/or dependent daycare expenses, they can request reimbursement from their Flexible Spending Account or they can use a convenient debit card to pay these expenses.

Up until recently, the IRS required that any unused funds in the health care spending account be forfeited after a 2 ½ month grace period into the following calendar year.  New regulations permit employers to continue offering the grace period for the remaining balance or to allow participants to carry over up to $500 in the account into the next year.

Employers also benefit by offering Flexible Spending Account benefits.  In addition to offering your employees a helpful, money saving benefit, there is generally little to no cost to the employer.  When a private employer’s employees participate in the program, the employer’s matching FICA (7.65%) contributions are lowered.  Employers generally save $76.50 for every $1,000 withheld in the Flexible Spending Account per year.  If your organization does not offer FSA benefits, but wants to take a look at this option for next year, ask your broker or consultant for a listing of area administrators.

Check with your employer’s human resources department to see if your company offers Flexible Spending Account benefits. State employees, visit the Group Insurance Commission’s website for details on this fall’s FSA Open Enrollment: www.mass.gov/gic/fsa.  

Written By:

Recent Posts

DOR Ruling Favorable in First Circuit Judgment posted on Mar 17

The United States Court of Appeals for the First Circuit issued judgments in the Department of Revenue’s (DOR) favor last month, finding that taxpayers in Bankruptcy proceedings cannot discharge late filed tax returns. The court consolidated two similar cases brought before them involving a total   …Continue Reading DOR Ruling Favorable in First Circuit Judgment

Five Reasons to E-File with DOR’s WebFile for Income posted on Feb 24

With Tax season well under way; DOR would like to help you make the decision to E-File with WebFile for Income this year. We know, “I’m not computer savvy” or “What about the safety of my information” has been said many times before, but we’d   …Continue Reading Five Reasons to E-File with DOR’s WebFile for Income

Class in Session at DOR University posted on Jan 20

Looking to educate yourself this tax season? Want to learn more about tax options, or DOR-related issues? All this can be achieved at DOR University, the Department of Revenue’s free online e-learning module. DOR University, created to offer free tax education to the public and   …Continue Reading Class in Session at DOR University