Bills have been introduced in the Senate and House of Representative to raise the limit on dependent care flexible spending accounts (FSAs) where dependent-care expenses (including child-care) are paid with pretax dollars. Unchanged since 1986, the current cap for qualifying expenses is set at $5000. Unfortunately, more than 20 years later with no change to the limit, this benefit has become significantly outdated.

Dependent Care Flexible Spending Accounts - What Are They?

A dependent care flexible spending Account (FSA) enables you to take pretax dollars and pay for dependent care while at the same time lowering your taxable income. You allot part of your before-tax dollars to help pay for your work-related dependent care costs for the year.

So what qualifies as valid dependent care costs? Read the rest of this entry »

What is a cafeteria plan?

A cafeteria plan is an employee benefit plan offered in the US which follows Section 125 of the tax code. Its name is derived from earlier plans that enabled employees to pick and choose between different types of benefits offered by an employer, as they would pick and choose among food choices in a cafeteria.

In 2005 the federal government announced that employers could design “cafeteria” plans that would reimburse claims for participants that were incurred up to 2½ months after the end of the year.  Before this, reimbursements were only valid for claims during the plan year. But with this new ruling,  a grace period was extended until March 15 to the employee participating in a Flexible Spending Account or FSA plan ending December 31 provided that the grace period was adopted by the employer. This new expansion of the claims reimbursement cycle reduced the  “use it or lose it” fear among many employees  and as a result increased the overall number of employees choosing to participate in an FSA. At the same time, employees were better able to target the funds for purchases that they actually needed. Read the rest of this entry »

A flexible spending arrangement (FSA), or Flexible Spending Account, as they are commonly called, is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer in the United States. Flexible spending accounts allow an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Money deducted from an employee’s pay into an FSA is not subject to payroll taxes, resulting in a substantial payroll tax savings. Read the rest of this entry »