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If you’ve ever tried to take the medical expense deduction on your federal income tax return, then you know it’s darn near impossible to qualify unless you or a dependent suffers from a catastrophic illness or requires expensive ongoing medical treatment. The tax code, however, provides another od that many more taxpayers can use to reduce taxes. Specifically , Flexible Spending Accounts (FSAs) allow taxpayers to use pretax dollars to pay for medical expenses that aren't reimbursed by their health insurance plan, as well as some dependent care expenses. Tax savings of several thousands of dollars are possible through FSAs. Deductibles, co-payments for medicine or doctor visits, and expenses like eyeglasses and medically related transportation expenses are all examples of expenses that may be reimbursed by FSAs. In short, FSAs cover many expenses that may not be patently obvious to the average taxpayer. Moreover, 90% of large employers offer these accounts. Everyone who has access to these accounts probably should have one. Unfortunately, workers whose employers do not provide these accounts cannot participate through a third party administrator. FSA arrangements typically involve regular payroll contributions. During the course of the tax year, your employer deducts the amount you select from your paycheck and puts it into a personal account for you to use to pay for medical expenses and dependent care costs not covered by insurance or some other plan. Since employers may offer either medical or dependent care FSAs, you must do the research to find out what is available because these expenses must be covered through separate accounts. Money cannot be transferred between different accounts, and health care expenses cannot be reimbursed from a dependent care account or vice versa. Paying for medical expenses using FSAs sometimes results in benefits not otherwise enjoyed under traditional health insurance programs. For example, although many health insurance plans do not cover chiropractic care, this type of treatment may be paid with the pre-tax dollars in an FSA. Even the expense of a massage may be covered in certain circumstances. Pre-tax money also can be used to help pay the costs of any caregiver providing services while you're at work. This includes the cost of nursery school for kids or the cost of a home health aide looking after a disabled spouse. While a ny FSA reimbursement reduces the amount you can take for a dependent care credit on your tax return, you either end up in the same position or come out ahead using FSAs. Finally, it is important to keep in mind that, although FSA deposits are made from an employee's paycheck, employees do not really own their deposits. Account balances are forfeited at year’s end if unused, or with a change in jobs. Moreover, an employee’s heirs do not receive account balances in case of a premature . You’re also stuck with making the regular contributions to a FSA that you chose during the enrollment period, unless there is a major change in your life circumstances. For these reasons, you should very carefully decide your contribution to a FSA and claim reimbursements as quickly as is permissible or convenient. ________________________________________ By Dave Fuller
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