Taxes: Make More, Pay Less

Financial planner Rebecca Schreiber says the upcoming benefits open season is a good time to reduce your tax bite while setting aside money to take care of the teeth you bite with. She specializes in helping younger feds with financial planning, but she’s always on the lookout for ways to cut taxes and maximize medical benefits. One way is to setup a Flexible Spending Account which you can use to cover medical items and procedures not covered by your health plan. And to do it at a discount. Here’s what she says:

“The tax man comes far more often than once a year. Every pay period you sigh at the difference between your gross income and the net pay and a shiver goes down your spine. Well, now when you check your earnings statement you can find a glimmer of hope. Yes, you can even take back a little ground on the tax man’s playground – your paycheck.

As the federal government enters open season, Feds everywhere are looking to get the most for their benefits costs. After choosing life insurance, a healthcare plan and giving an offering to the TSP, most people call it quits. What they tend to overlook is the Flexible Spending Account or “FSA”. Of the different FSA programs, the medical FSA offers a unique opportunity. The flexible spending account lets you put aside some of your income pre-tax to pay for qualified medical expenses. You set an annual contribution level during open season and the contribution gets deducted from your paycheck in equal pieces over the course of the year.

Medical FSA = Interest-Free Loan

What’s different about the medical FSA versus the other FSA programs is that you can claim up to the amount of your annual contribution on day one of the program year. For example, let’s say you expect to spend $1,500 next year on regular prescriptions and medical copayments. In January you head to the dentist for a normal checkup and find out there are four cavities that need to be filled. As you count up your remaining intact teeth and realize there may not actually be four undrilled teeth left it occurs to you that there will now be four cavity copayments. Being that it is the beginning of the year and your FSA account has tumbleweeds rolling through it you may worry where you will come up with the money. What do you do? Submit the FSA claim anyway. As long as the claim is under your total contribution limit for the year, the amount you set during open season, the government will front you the money. If you’ve hit your limit you won’t be able to increase it, and during the course of the year your medical FSA deductions will go to reimburse the government resulting in an interest-free loan. It sure beats paying interest charges on a credit card.

Use or Lose – For You and for the Government

The FSA “use or lose” clause runs both ways. If you don’t spend all of your FSA money by March 15th of the next year the government gets to keep it. If you leave owing the government money in your FSA they can’t come back and get it from you. Go to the FSAfeds.com website and check the FAQ on filing claims for reimbursement. There it will explain that employees have access to the full amount they intend to contribute over the course of the year. What it won’t tell you is that the SHPS program absorbs the cost of participants leaving the government having spent more than they contributed to the plan. In this economy, it’s not a high probability, but it’s nice to know you’re not the only one sweating the “use or lose” boogeyman.

One Last Freebie…

If you have been struggling with saving and are looking for a way to save without paying attention have your FSA reimbursements directly deposited into a separate checking or savings account. Those $25 copayments don’t take a big bite out of your monthly budget, and any $25 reimbursement check will get spent or lost. Have the money sent directly to a separate checking account and the reimbursements will flow into it over the course of the year. By the time December rolls around you’ll have a nice nest egg waiting for you.” Rebecca Schreiber

Nearly Useless Factoid

You may have heard that the first bathtub in the White House was installed by Millard Fillmore. That’s a hoax. According to MentalFloss, the whole thing was made up by H.L. Mencken as “just a bit of fun, but others suspect that he wanted to prove the point that readers will believe anything printed. And they did!”

To reach me: mcausey@federalnewsradio.com

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