Save on Taxes with Flexible Spending Accounts
Flexile spending accounts (FSAs) are made possible by Section 125 of the Internal Revenue Code and are subject to regulations set by the IRS. Flexible spending accounts are a way to set aside money to pay for certain expenses and save on current taxes. When you set aside amounts in FSAs and draw on them only for qualifying expenses, you never pay federal, state, or Social Security tax on the amount set aside. USC offers two types of accounts—the Health Care FSA and the Dependent Care FSA. Pretax contributions will be deducted over the full 12-month calendar year (except for faculty and staff who have opted to receive their base pay over a nine-, 10-, or 11-month cycle).
Health Care FSA
You may set aside up to $5,000 a year in the Health Care FSA. This account can be used to pay for expenses such as medical and dental plan deductibles, co-payments, prescriptions and certain eligible over-the-counter medicines, and other health care expenses that are not covered by your medical or dental plans. Most health care expenses—but not all—that are considered tax deductible by the Internal Revenue Service are also eligible for reimbursement under a Health Care FSA. However, costs associated with cosmetic surgery and premiums for medical and dental insurance are not eligible expenses under the Health Care FSA. In order to be eligible for reimbursement from your FSA, health care expenses must be incurred on your behalf, for your spouse, or for an eligible dependent as defined by the IRS. Visit the IRS Web site at www.irs.gov/formspubs/index.html to order publication 502 and 503.
A Health Care FSA initiated in 2008, will reimburse you for eligible expenses incurred in 2008 and up to March 15 of 2009, up to the annual sum you have designated, whether or not that amount has yet been set aside from your pay. However, if you leave USC employment, calendar year 2008 claims incurred after your termination date may not be submitted for reimbursement, even if amounts set aside from your pay remain unused, unless you elect COBRA continuation coverage on an after-tax basis for your Health Care FSA. A claim is incurred when the relevant services are provided.
Dependent Care FSA
You may set aside up to $5,000 a year for dependent care expenses. If you pay for dependent care so that you can work, you are eligible to open a Dependent Care FSA. Eligible expenses include expenses for day care centers, baby sitters, companions, and before and/or after school care. However, expenses for educational programs, transportation and the cost of "sleep-over" camp are not eligible dependent care expenses.
To qualify as an eligible expense for the Dependent Care FSA, day care must be provided for an eligible dependent who is:
—a child under age 13, or
—a child, spouse, parent, grandparent, brother or sister, or other dependent who is not able to care for him/herself because of a disability and who normally spends at least eight (8) hours each day in your home.
If you are married, both you and your spouse must work in order to be eligible to set up a Dependent Care FSA. The amount set aside in a FSA cannot be more than your earned income or your spouse's earned income, whichever is less. You also may open a Dependent Care FSA if your spouse does not work and is a full-time student or is physically or mentally disabled. Under these circumstances, you may generally set aside up to $200 a month for one dependent and up to $400 a month for two or more dependents.
Dependent care claims are reimbursed up to the current balance in your account; money is not paid in advance. However, if you leave USC employment during 2008, dependent care claims incurred in 2008 can be submitted following your termination date subject to the filing requirements listed below.
Remember, the IRS requires that you provide a receipt that includes the name, address, and taxpayer identification number of the person or organization that provides day care services. You also should be aware that your W-2 tax form will reflect any monies you have set aside in the Dependent Care FSA. Also, the money you set aside in a Dependent Care FSA will reduce—dollar for dollar—the maximum amount of expense you can apply toward the federal dependent care credit on your income tax return. Consult your tax advisor to see which method will work best for you.
1
2
3
next »
·
·
·
·
·
·
·
·
·
·
·
|
