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.
The Top Ten Benefits of “MassTaxConnect” for Business Taxpayers posted on Jul 30
Getting to know DOR’s New, Modernized Filing System As you may have heard, the Massachusetts Department of Revenue is revamping the way the business taxpayers can file taxes in the Commonwealth. This new filing system, MassTaxConnect, offers taxpayers a state-of-the-art tax administration system that will …Continue Reading The Top Ten Benefits of “MassTaxConnect” for Business Taxpayers
Prep Early for Next Tax Season posted on May 20
Filing season is finally over and we know the last thing on your mind is next tax season. But did you know that if given more prep time, you could be saving yourself lots of stress and time? Start planning for next tax season now …Continue Reading Prep Early for Next Tax Season
DOR’s Participation in the Family Court Workshops posted on Apr 22
Once a month, the Department of Revenue’s Child Support Enforcement (CSE) lawyers and staff volunteer to be a part of the Family Court Workshops for Mothers and Fathers at the Suffolk County Probate & Family Court in Boston. The workshops, a joint venture between community …Continue Reading DOR’s Participation in the Family Court Workshops