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Perfecting Your Perks
Wise Choices Today About Your Employer
Benefits Plan Can Pay Big Savings At Tax Time
With the benefits election and enrollment
period underway at many U.S. companies, tax professionals at H&R
Block are reminding employees that wise benefit decisions today can
mean lower taxes next year -- and more cash in your pocket now and
in the future. Taking advantage of your employer’s benefit elections
can reduce your taxable income and may qualify you for bigger credits
and deductions.
Open enrollment, which typically takes place at most companies for
several weeks in October, November or December, provides employees
with the opportunity to adjust their employment-sponsored health,
tax-exempt savings and retirement plans.
Healthy Choices
In the healthcare area, employees should remember that many companies
offer multiple health plans with varying levels of premium costs and
deductibles. Determining which plan makes the most sense depends on
the employee’s age, health and income level.
For those who choose a high-deductible, lower-premium plan, the new
Health Savings Accounts (HSA) offer a tax-free option of accumulating
cash to use against the deductible. Any amounts that are not used
can accumulate in the account to use in future years. Furthermore,
the contributions are deductible and can be made up to April 15 of
the next year.
Health Savings Accounts are like an Individual Retirement Account
(IRA) for medical expenses. Creating an HSA can provide a ready source
of cash in the event of future medical emergencies. And because you
can carry those contributions forward, you don’t necessarily
need to use the money in the year during which you contributed it.
Saving for a Sunny Day
On the retirement front, a key way for employees to boost savings
with every paycheck is to think about how much they can afford to
save toward their retirement. For example, if you can afford $100
per month and you’re in the 20 percent tax bracket, it will
only cost $80 to put $100 in your employer’s 401(k) plan. Bottom
line: You can actually afford to sock away $120 per month at a cost
of less than $100.
It’s also important to try to maximize savings so that you’re
benefiting from the full amount of your employer’s matching
contribution. Employees should familiarize themselves with their company’s
savings criteria in order to reach the maximum employer-matching amount
as quickly as possible.
Checking Out the Cafeteria Menus
Careful and appropriate use of Flexible Spending Accounts or Cafeteria/125
Plans for eligible healthcare-related and out-of-pocket costs or childcare
expenses can benefit you by allowing you to set aside a certain amount
of dollars before your wages are taxed. This means the money you put
in that account is not subject to income, social security, or Medicare
taxes. You do forfeit any amount left in the account at the end of
the year.
Eligible medical expenses include medical, dental and vision plan
deductibles, co-payments and co-insurance that you pay. IRS regulations
issued last year also define as eligible expenses certain over-the-counter
(OTC) drugs and medications, including aspirin, cough medicine and
common cold remedies. Even the miles you drive to get to the doctor
or dentist are eligible at 14 cents per mile.
Working parents know how quickly childcare expenses can add up and
you may want to take advantage of the pre-tax Flexible Spending Account
for childcare offered by your employer.
This type of account allows you to designate a specific amount for
childcare expenses, up to $5,000 per year, that’s deducted from
your paycheck. Childcare expenses are usually predictable so you can
come pretty close in estimating the amount to put aside. If you underestimate,
you can claim the childcare credit for those expenses.
Typically, a pre-tax payment plan is going to be more advantageous
than a credit, but you may want to contact your tax professional or
use H&R Block’s Daycare Expenses calculator at hrblock.com.
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