Flexible spending accounts are offered by majority of employers wherein workers set aside pre-tax money to pay for medical expenses or dependent care. However, a limited number of eligible workers use the medical accounts, and even lesser than that make use of the dependent-care accounts.
Medical Flex Accounts
In such an account, you select an amount at the launch of the plan year to have withdrawn from your pay-check, which is shelled out in instalments with the amount deducted from your salary prior to tax calculation.
According to Mercer Health & Benefits, workers on an average opt to have withdrawn an amount of $1,261. During any period in the year; you have the option to pay receipts for medical expenses and be compensated.
Points to remember:
Spending all the money by the end of the year is important, although many employers do permit an extra time-period to submit receipts after the plan year ends, but beyond that you lost the money.
However, in case you stop your job in the midyear and having received higher amounts in reimbursements than you would have took out of your check; you need not to pay the cash back.
It should also be noted that if health-wise you have a good year, which all of us want, then it's somewhat disadvantageous as now you've the money that is not spent.
Dependent-Care Flex Accounts
This type of account is identical to the medical accounts, but however the money goes to compensate a daycare giver whereas you can avail money back only after it's took out of your paycheck. Thus, you survive with a lesser paycheck and yet pay your daycare provider prior to getting reimbursed.
Also, the care-giving deal needs to be legal, needs to be reported to the IRS and should be for your children under age 13, or of your dependents incapable to care for themselves.
Finally, dependent-care accounts substitute the federal childcare tax credit, so your employer can offer you a worksheet to figure-out which is healthier for your situation. However, in general, higher income earners stand to benefit more by way of the flexible spending account.
