How to Maximize the value of your Employee Benefits

There are many components that contribute to sound financial planning. Most of us are aware of the importance of spending less, saving more and sticking to a budget. However many people fail to recognize how some employee benefits can contribute to the household budget. Group health insurance, 401(k) plans and paid vacation days are some of the benefits offered by employers that are understood with relative ease, but there are other benefits that people may not know about or know enough about to gain the full advantage. One of those benefits provided by employers is a Flexible Spending Account (FSA).

Demystifying Flexible Spending Plans.

Also called a flex plan or reimbursement account, a FSA is an employer-sponsored benefit that allows you to pay for eligible expenses on a pre-tax basis. Eligible expenses include medical expenses not covered by your current health insurance such as deductibles, office visits, etc; as well as child or dependent care expenses. If you employer offers this plan and you anticipate incurring any of these expenses you should be taking advantage of this valuable benefit.

How does a Flexible Spending Plan benefit me?

Contributions made to your FSA are deducted from your pay before your Federal, State, and Social Security Taxes are deducted which means they are not reported to the IRS. This results in your taxable income decreasing while your spendable income is increased. You could potentially save hundreds or thousands of dollars by participating in the plan.

How does an FSA Work?

If you are planning on taking advantage of this valuable benefit from your employer, they will ask you at the beginning of the plan year (usually January 1st) how much you would like to contribute for the year. There are limits for both medical and dependent care plans so you will have a guideline regarding how much you are allowed to contribute. Once you determine how much you are contributing you can expect to see equal deductions taken from your paycheck each pay period for the plan year. That money is set aside in an account by your employer for reimbursement throughout the year as you pay for medical or dependent costs not covered elsewhere.

When determining how much you would like to contribute for the year you should take a close look at your previous medical or dependent care needs. Some people think by contributing the maximum amount they are safe, however this benefit is a use-it-or-lose-it type of benefit. If at the end of the plan year you have not used all the money that you have had deducted you will have to forfeit the remaining amount. Individual companies set the limit for medical care accounts, while dependent care accounts have a strict Federal limit of $5,000 per family. That means if each parent participates in a FSA plan the limit for BOTH persons cannot exceed $5,000 combined.

In a time where many families are struggling to get by, it is imperative to understand benefits available to you at your workplace. If you have any questions about what type of benefits are available to you or how they work, make the effort to contact your human resources department to get a better understanding how these benefits can help you and your family.