Year End Tax Planning For Flexible Spending Accounts
BOSTON (CBS) - I know the holidays are on your radar screen right now, but there is still time to do some tax planning for this year. And I do know that next year taxes will be different. How different I do not know.
Let's start with Flexible Spending Accounts (FSAs), sometimes called cafeteria plans or section 125 plans, which have over 33 million employees enrolled. Flex Accounts are a benefit offered by many employers whereby you set aside part of your income, pre-tax, to these accounts.
You can use the dollars for either medical expenses or childcare throughout the year. Usually you are allowed to contribute up to $5,000 for childcare and $3,000 for medical expenses. Employer plans do vary. The medical expenses limit is being decreased to $2500 for next year (2013).
Currently you will lose any money remaining in your account at the end of the plan year, but depending on your plan, you may have until March 15 of next year to spend it. The IRS and Congress are actually considering making more changes and the "use it or lose it" rule may go away.
According to Mercer Consulting, over $400 million are left in these plans annually. So take a look at what's left in your account and make plans to spend it. If there are dollars left in the childcare account that's easy, pre-pay for January and February now.
Next, review your medical account. Many over the counter medicines now require a prescription from your doctor if you want to be reimbursed.
There are some things you can do right now to use some of the dollars in your account:
- Schedule your annual checkup if it is not covered by your health insurance plan
- Pre-pay the kid's orthodontist for their braces
- Get your teeth cleaned, get the kids to the dentist over school vacation as well
- Pre-pay your dentist if you are having dental work such as implants or crowns
- Get an eye exam, an extra pair of glasses or prescription sunglasses.
- Weight loss programs – here you need a note from your doctor that you need to lose weight to treat a specific medical problem such as diabetes or high blood pressure, pre-pay the membership fees
- Want to quit smoking? – same route get a doctor's note and pre-pay the program fees
- Stock up any over the counter (OTC) drugs you use normally such as Claritin and aspirin
- Lasik eye surgery which is normally not covered by insurance
