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Key Points to Remember |
General Information Plan Maximums – Your employer determines maximums and minimums for the accounts. You are notified as to what they are each year at enrollment time. Social Security Benefits – Since you don't pay Social Security taxes on your spending account contributions now, those benefits may be slightly less when you retire or become disabled. But this reduction is slight, so your tax savings will probably more than offset the Social Security reduction. Forfeitures – IRS Regulations require that you forfeit any money you deposit in a spending account and do not use to cover eligible expenses incurred that same year. But, careful planning can help reduce the risk of losing funds. Completing the Savings Worksheet will provide your estimated tax savings which represents the most you can save before adjusting for any forfeitures. Separate Funds – As health care and dependent care spending accounts are two different benefit plans, funds can't be commingled between accounts. For example, if you underestimate health care expenditures and overestimate dependent care expenses, you CANNOT transfer money from one account to offset the other. Health Care Reimbursement – When you submit a claim, you will be reimbursed up to the full amount of your total annual contribution election, regardless of the amount of money that has been deposited into your account. Contributions will continue throughout the year and claims will continue to be paid until your annual elected maximum is met. Maximums – The IRS does not currently set specific limits on the amount of medical/dental expenses that can be reimbursed with a health care spending account. But, federal regulations require each employer offering health care plans to establish annual account maximums. Flexible Spending Account vs. Tax Deduction – You cannot deduct health care expenses from your income tax return if they were reimbursed by a spending account. Keep in mind that the IRS only allows an income tax deduction for medical expenses exceeding 7.5% of your adjusted gross income. Most people's health care expenses aren't high enough to qualify for this deduction. Unreimbursed Expenses – Only expenses not reimbursed by any other plan are eligible for reimbursement through a health care spending account. Also, any procedure considered cosmetic in nature is not eligible for reimbursement through a spending account. Dependent Care Reimbursement – If you submit a dependent care claim and your account balance is less than the amount of the claim, you will be reimbursed for the amount of the money available in your dependent care account. Any remaining expenses are reimbursed when additional payroll deductions are deposited into the account. Maximums – The IRS limits the maximum amount you can deposit in your dependent care account to $5,000 or $2,500 if you are married and filing separately. Your employer's maximum may be lower. Spending Account vs. Tax Credit – According to current tax structure, if your income is less than $39,000 in most cases (depending on your filing status, number of dependents, and dependent care expenses) the tax credit is more beneficial than a dependent care spending account. Spending Accounts + Tax Credit – You can use both a dependent care spending account AND a tax credit, provided you do not claim the same expenses for both. Filing – You must complete IRS Form 2441 when filing your income taxes if you participate in a dependent care spending account. Your employer will assist you by reporting all dependent care contributions in Box 10 of your W-2 Forms. |
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