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Kim Butler

Partners for Prosperity, Inc.

City:Mt. Enterprise

State: TX

I have 20+ years of handling alternative investments in cash, growth and income for clients nationwide.  I strive to help my clients with all things financial in every way possible over the phone and the web.  I own an alpaca farm which I enjoy working during my downtime.  I also enjoy gardening, writing and reading books.  I also train other advisors on Prosperity Economics.

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Flexible Spending Accounts Can Help Offset Rising Costs of Health Care

Flexible spending accounts can yield tax savings to help defray medical expenses, but not all eligible workers take advantage of the programs.

American workers can help offset the rising costs of health insurance through the use of flexible spending accounts, but many employees have yet to realize the account’s potential tax savings. 

 A Flexible Spending Account, also known as an FSA, allows employees to pay for unreimbursed health care costs with pre-tax income. The employer-sponsored accounts allow workers to deduct a portion of their paycheck - before taxes are calculated - and allocate the sum to a flexible spending account.  And, the taxable income reported to the government is lowered by the amount deposited into the account.

 Employees determine the amount of the set-aside by estimating unreimbursed family health care expenses for the year. The amount accumulates through the year through regular payroll deductions. As employees incur health care expenses they can file for reimbursements. Payments from a flexible spending account are not subject to taxes. As a result, employees receive a discount on their health care costs equal to the taxes that would be otherwise due on the money paid into the account.

 In addition to their advantages, flexible spending accounts have several drawbacks. “Use it, or lose it,” says the IRS of money held in the accounts. According to IRS rules, funds that are set aside, but not spent are forfeited by the employee. And, Social Security benefits will be calculated on the lower taxable earnings.

 The Kaiser Family Foundation reports today that insurance premiums paid by the average American family rose 9 percent in 2011, while premiums for individual coverage rose 8 percent.  In dollar amounts, the average family contribution was $4,129 this year, while individuals paid $921. Additional costs accrue from annual deductibles and copayments, and vary according to specific plan requirements. About three-fourths of covered employees pay a portion of the cost of office visits , and nearly all workers share the costs of their prescription drugs.

 Despite these rising costs, 46 percent of eligible workers are not using their flexible spending accounts, reports contributor Kay Bell. Citing data from a recent American Payroll Association study, Bell repots that only 12 percent of employees contribute $2,500 or more to their company flexible spending account. Another 39 percent contribute less than $2,500.