Tag Archive for health insurance

Using Your Flexible Spending Account to Avoid Paying Even More Taxes

Using Your Flexible Spending Account to Avoid Paying Even More Taxes

Using Your Flexible Spending Account to Avoid Paying Even More TaxesThe following is a contribution from my blogging friend, DJ.

When it comes to creative ways to save money, one of my favorite ones is to keep the money for myself instead of paying more in taxes than I have to.

Most people know that retirement accounts such as a 401(k) or IRA are great tax-avoidance savings tools that we can use. But they?re certainly not the only ones!

In particular, one that most people have access to but forget to use is an FSA or?flexible spending account.

What Is a Flexible Spending Account?

A flexible spending account is a special type of account where the U.S. government allows you to put a certain portion of your money to use for dependent care and medical expenses. They do this because these are arguably two things that most middle-class families struggle with financially, and by providing some tax relief on them, this cuts us a break.

How Does An FSA Work?

The way an FSA works is simple.

Every time you get paid, a pre-determined amount of money that you elect is taken out of your paycheck before taxes are deducted (similar to how your contributions to a 401(k) are taken out). That money then finds its way over to the service provider of your flexible spending account for safe keeping. Then, throughout the year as you make any eligible purchases in one of these two categories, you can use the money to effectively ?pay yourself back? until all of the funds are used up.

Why not just forget the FSA and set the money aside yourself?

In one word: Taxes.

The fact that this money comes out free of taxes is a huge benefit!

How big??Let?s take a look at how much money you actually end up saving with your flexible spending account.

Dependent Care

It wasn?t that long ago that my children were little and had to go to daycare while both my wife and I worked. We would always joke that daycare was the ?second mortgage payment? that we?d write every month. Man, we really needed a break!

It was about this time that we first noticed that my wife?s work was offering an FSA option. I did the math on it, and this is the lesson I learned that turned me into a believer.

The maximum allowable contribution for dependent care expenses is $5,000. At a tax bracket of 25 percent, had we tried to pay this $5,000 ourselves out-of-pocket, we would have had to earn $5,000 / (1 ? 0.25) = $6,667 in gross wages. BUT thanks to being allowed to use this money directly tax-free, the FSA saves us $6,667 – $5,000 = $1,667 for the year. That?s not a bad deal at all!

Each month as we?d make the daycare payments, we?d simply upload our receipts through the service provider?s portal and receive reimbursement. (Nowadays, some service providers even have smart-phone apps that you can use to do everything in under a minute.)

Medical Expenses

In addition to using your flexible spending account for dependent care expenses, the other major category that you can elect to use is for medical expenses such as your doctor?s bills, surgeries, prescriptions, dental work, vision, etc.

The process with the medical expenses works exactly the same as it does the daycare. As your bills are paid, the proof of receipt is sent in to the service provider and reimbursements are made.

For medical expenses, the maximum cap is $2,600. Again, if we?re in the 25 percent tax bracket and use this full amount, the tax savings will work out to $867 for the year.

Accounts Are Separate

Please keep in mind that your medical and dependent care contributions are separate.

When first signing up to participate in this program, you have to elect how much you want to go in each one. For example, if you elect to use the dependent care one only, then you cannot submit receipts for medical expenses. And vice versa.

Use It Or Lose It

One of the biggest drawbacks to using a flexible spending account is the fact that your elections are on a ?use it or lose it? basis.

For example: If you allocate the entire $5,000 for dependent care, but for whatever reason only spend $4,000 for the year, then unfortunately you could potentially lose the remaining $1,000. Therefore, it?s generally a good idea to conservatively estimate how much you really intend on spending without going too far over.

I say ?potentially? lose this money because your FSA does cut you some slack. I know from personal experience that there is typically a two and half month window between years where you can try to use up any unused funds from the previous year before they expire.

Another clever way around losing your FSA funds is the fact that what you can claim is quite flexible. There are a ton of off the wall but qualified things that you could spend your funds on that you?re probably not even thinking of. These can be simple purchases such as:

  • Over the counter medication
  • Allergy pills
  • [easyazon_link keywords=”Sunscreen” locale=”US” nw=”y” tag=”wisedollar-20″]Sunscreen[/easyazon_link]
  • Putting together a first aid kit
  • [easyazon_link keywords=”Band-aids” locale=”US” nw=”y” tag=”wisedollar-20″]Band-aids[/easyazon_link]
  • [easyazon_link keywords=”Pepto-Bismol” locale=”US” nw=”y” tag=”wisedollar-20″]Pepto-Bismol[/easyazon_link]
  • [easyazon_link keywords=”Clearasil” locale=”US” nw=”y” tag=”wisedollar-20″]Clearasil[/easyazon_link]
  • And a whole lot more!

Conclusions

If you?d like a really simple way to squeeze as much as $1,667 extra on daycare and $867 on medical expenses, then talk to your company HR and see if you have the option to sign-up. If you can?t, please keep in mind that you might also have the option to sign up for an HSA instead.

We?ve been using our FSA for years, and – again ? the taxable savings just keep adding up and allow us to spend the money on the things we really want to!

 

DJ is the author of the book ?[easyazon_link identifier=”B00VXP4E8A” locale=”US” nw=”y” tag=”wisedollar-20″ cart=”y” popups=”y”]Save BETTER![/easyazon_link]? and creator of 1,000 Ways to Save, a website that is dedicated to finding as many great ideas as possible that will help you spend less and save more!? Please feel free to connect with him on Pinterest.

 

Photo courtesy of: gzvezdov

How to Select the Right Health Care Plan for Your Needs

health care

doctor-1228627_640Health care is a hot topic these days, and everyone has an opinion on which company to purchase health insurance from. So, how do you wade through them all to decide on just one? Unfortunately, you do have to decide or face the tax penalty.?Here are some tips to help you select the right health care plan for your needs.

Check Your Current Coverage

Whether your current insurance plan is through your employer or privately purchased through the marketplace, coverages differ, so don?t be swayed by the opinion of someone else. To really know if you have a plan that works for you, find out the facts.

If you don?t know what your plan covers, ask. Get it in writing so you can reference it as you need to. Selecting the right health care plan for your needs is a personal decision. Everyone’s needs are different, which is why there are a variety of different plans available on the marketplace and at most employers too.

Compare Health Care Plans

If you?re insured through your employer and are thinking about making a plan change, check with the human resources department of your company to find out when and if you can make changes. There are usually certain times of the year, called Open Enrollment, when you can make changes to your health care plan and other benefits. Make sure to ask what, if any, changes you can make and the cost. Are there deductibles and co-insurance amounts to be met? If so, what are they? You are going to be receiving a lot of information, so I suggest you get a notebook and write everything down.

What do you do if your employer doesn?t offer health insurance? Check the Insurance Marketplace for your state. You can look it up online and find out what is available. Generally speaking, if the monthly premiums are less, the deductibles and co-insurance amounts are going to be higher. Conversely, if the monthly payment is more, the deductible and co-insurance amounts usually go down.

Now that you know what is available, compare the plans to see what fits your budget. Can you afford a higher premium in order to pay less out of pocket later if hospitalized? Or, are you fairly healthy and rarely require medical care? If so, maybe a lower premium is better for you. You must weigh these options to determine which health care plan is the best for you and your family.

Another favorite option is eHealthInsurance?- which allows you to compare plans and find the best one for your situation.

In Network and Out of Network

Many insurance plans have lists of which hospitals and doctors are accepted as belonging to their group of providers, in other words, in network. If the health care provider you prefer is not on the list, they are considered out of network and many times the bills you have from them will not be covered, or they will be covered at a lower rate.

Check the in network list?before you make a final decision on your health care plan to make sure the providers you see will be considered in network. If not, you might need to choose a different health care plan or find a new doctor to save money.

Read the Fine Print

Be wary of terms such as ?usual and customary? and ?reasonable and necessary.? These terms are a gray area and are an insurance company?s way of wriggling out of paying for a claim should you be hospitalized and have a large bill. If at all possible, stay away from plans with these gray areas.

Now that you know these basics, you should be able to avoid that penalty and make an informed decision about which health care plan is right for your needs.

 

How did you select your health care plan? Can you think of any other things people shopping for a health care plan should be aware of?

 

Photo courtesy of: valelopardo

Can I Pause My Health Insurance If I Lose my Job?

health insurance

health insuranceThe following post is for our Australian readers…

Losing your job can be extremely stressful. The lack of immediate income and uncertain future can take a mental toll on virtually anyone who experiences it, particularly where unpaid bills are concerned. One of the most important bills for many Australian workers is their required monthly contribution to a health insurance policy.

While essential to individuals who wish to build and secure a future for themselves and their families, health insurance does not generally represent a day-to-day necessity and is often one of the first financial obligations considered for deferral in the wake of unexpected unemployment.

Unfortunately, most providers do not provide a standard utility allowing policyholders to temporarily suspend their policies due to financial constraints. A lapse in payment on the policy will simply render it void until the policy is reactivated, typically by settling the outstanding balance along with associated reactivation fees. For this reason, it is advisable to keep up with the payments if at all possible. Private HBF health insurance in Australia will give you many different options depending on your situation, your best bet is to call your provider & speak with them directly.

Policy Preservation Options

Having your health insurance policy placed in jeopardy is a serious issue, but as with many things in health, the best defense is prevention. A way to protect your policy while you are still able to pay the premium is to sign up for special policy options that ensure the continuation of your cover in the event of job loss.

These are optional policy features available at a premium from many providers, and typically allow premiums to be waived for a set period after the loss of a job. After this period has ended, you will be responsible for making payments on your policy again, but this reprieve can prove valuable to individuals suddenly burdened with a loss of income.

Income Protection

Many insurance carriers also offer an option known as income protection as a supplement to a health insurance policy.

Income protection is also known as redundancy insurance, and when activated, income protection replaces your income for a set period of time during your unemployment to help with everyday expenses, including bills. Some policies even provide for these expenses directly as well, such as by making your credit card payments for a set period of time.

Redundancy protection sounds like an extremely valuable resource to newly unemployed individuals, but there are a number of restrictions and limitations on most policies of this type. For example, most income protection policies do not allow you to collect any income during a claim or can disqualify claims based on the circumstances of the policyholder?s departure from their job.

A health insurance policy can be a substantial expense, but keeping up with the payments is necessary for it to maintain its value, as there is no way to put a hold on a standard policy. Although there are options for policyholders to take advantage of before unemployment, the hard truth those who wait until they need the protection to seek it out are usually too late.

 

 

Photo courtesy of: 401kCalculator.org