Flexibility. It’s a word that is usually associated with something positive. The more flexibility a person has in their joints and muscles the healthier they seem to be. The more flexibility people have at work, the happier they seem to be with their employment. The more flexibility people have to pay off liability or a bill, the easier it is to manage that liability. When it comes to being flexible, it’s almost always a good thing. Unfortunately, the IRS is not always flexible. The nation’s top tax agency does have a little give and even some slight stretch in certain situations, but in actuality, they are never going to bend very far when it comes to paying your taxes and paying them on time. So what can you do to get a little more flexibility in regards to your taxes?
The answer is all in that word again: flexibility. Have you have heard of a flexible spending account, or FSA? An FSA gives you some much-needed flexibility with your taxes and if handled properly it can really save you some money on your tax bill. There were changes made in 2015 to the FSA. There are many employers that actually offer these types of accounts, however, most people either don’t know they exist or they don’t bother taking advantage of them, if they do know about them. If that’s the case, you could be losing out on some significant savings. So how does a flexible spending account work?
An FSA allows you to contribute pre-tax earnings, which are set aside for specific expenses related to dependent care or healthcare. That means the money you place in an FSA is treated just like the money you would deduct for a 401k retirement plan. It comes out before your taxes, which means it lowers your income. So, depending on how much you add to an FSA, you could save a nice chunk on your tax bill in each paycheck. It is up to your employer as to how much you can contribute to an FSA, but the IRS limit for 2015 is $2,550.
How do you know whether or not you should use an FSA? If you know you are going to have healthcare expenses during the year that will come out of your own pocket, then you should seriously consider opening up a flexible spending account. With an FSA in place, you can use that money towards your medical expenses instead of taking money out of your take home pay. There is the risk of losing unused money in a flexible spending account at the end of the year, but according to experts the percentage of money that goes unused is quite low. In fact, according to one study by Mercer, only 3-4 percent of FSA money was forfeited in smaller companies with FSA plans in 2013. For larger companies the number was even lower: just 1-2 percent.
Additionally, many employers have now added a provision that allows employees to actually get an extension until March 15 of the following year after the account expires. That means any new medical expenses incurred up until March 15 of the following year can be paid with any money that still remains in the flexible spending account. That means, these FSA plans now offer even more flexibility than ever. If you think a flexible spending account might be right for you then you check with your employer to see if they offer an FSA. You might be very glad you did, because while the IRS isn’t going to ever stretch very far out of place, an FSA gives you an opportunity to keep a little more of your hard-earned money for yourself.
This post was published on January 4, 2016