Friday, January 29, 2010

Flexible Spending Accounts help cut taxable income

By David Burton
University of Missouri Extension

Flexible Spending Accounts are a powerful financial tool that can help reduce taxable income according to Annette FitzGerald, a family financial education specialist with University of Missouri Extension.

“Flexible Spending Accounts are available through most employers and now is a good time to review your financial records and prepare for tax savings,” said FitzGerald.

A Flexible Spending Account is a program that offers tax advantages and allows employees to pay for eligible health care and dependent care expenses with pre-tax dollars.

“If you choose to participate in FSA, the amount you choose to contribute on an annual basis is withdrawn from your paycheck in equal installments each pay period,” said FitzGerald.

Most employer plans offer two different flexible spending accounts: one for qualified medical/dental expenses, and one for dependent care expenses.

”It is important to give some thought to determining how much money you plan to contribute, because if you don't use the money you will lose it,” said FitzGerald.

For example, if you have $100/month contributed to the FSA ($1200 for the year) and you submitted $1,000 allowable expenses, you will lose the unused $200.

According to FitzGerald, it is important to check in advance with your employer to ensure your desired expenses for medical and dental expenses will be covered and plan to use all the funds contributed to the Flexible Spending Account by year end.

Many employer FSAs now provide debit cards which allow for an electronic transfer of pre-tax dollars from an employee account to pay for qualified expenses. Employees can use their medical and dependent care funds by using their card at the point of service.

“The traditional paper process is eliminated with these cards, as are worries of lost receipts or expenses you'd otherwise forget,” said FitzGerald.

For more information on issues related to home finances, contact either of the MU Extension family financial education specialists in southwest Missouri: Annette FitzGerald, (417) 546-4431 or Janet Lafon, (417) 358-2158.

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