Pay Less tax and save more take home through FSA plans (Flexible Spending Account)
What are the Flex plans?
Flex plans also known as flexible spending account (FSA) plans. Generally, these plans allow an employee to save more take-home amount by paying less tax on his taxable income.
Before you pay taxes on your income, money is deducted from your account to pay for allowed expenses. Some of the money you pay for your group health plans, vision or dental insurance premiums. And some of the money deposited into your spending account. Depends upon your flex plan you are eligible to use spending account funds for following allowed expenses.
1.Health, dental or vision expenses which are not paid by your insurance plan.
2.Dependent/day-care expenses
3.Transportation expenses
4.Privately purchased insurance premiums.
5.Adoption expenses.
How does a Flex plan work?
An example will give a better idea on what does a flex plan really mean.
Advantages:
1.Pay less taxes on your income and save more take home pay.
2.Employee’s entire annual contribution is available at the start of the plan year, commonly January 1, or after the first contribution to the FSA is received by the FSA vendor, depending on the plan. Therefore, if the employee experiences a qualifying event during the first period, the entire amount of the annual contribution can be claimed against the FSA benefits. If the employee is terminated, quits, or is unable to return to work, he or she does not have to repay the money to the employer.
Examples of such qualifying events are:
Birth of a child, marriage, the end of employment, a reduction in working hours of the employee, and divorce if the employee.
Disadvantages:
1.One of major disadvantage of using FSA is that, any money that is not used by the end of the plan year (or grace period) is returned to the employer, known as the “use it or lose it” rule.
2.But after the Patient Protection and Affordable Care Act, a plan may permit an employee to carry over up to $500 into the following year without losing the funds.
Important note: FSA plans are not available in India.
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