| How it Works |
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You decide during the annual open enrollment period to enroll in the Unreimbursed Medical Account and/or Dependent Care Spending Account. You estimate the amount you will spend in out-of-pocket health care expenses and/or daycare expenses during the year. And you also decide how much of your pay you wish to set aside into your Unreimbursed Medical Account and/or Dependent Care Spending Account.
The amounts you wish to set aside into your account(s) will be deducted from your paycheck in equal amounts each pay period on a pre-tax basis. As you receive services and incur health care or daycare expenses throughout the year, you submit a claim for the expenses and are then reimbursed from your account(s).
You may file claims as often as you wish - weekly, monthly, etc. Any dollars left over in your account at the end of the year are forfeited. Therefore, you should contribute only what you know you will spend on predictable expenses. There is a run-off period (typically three months) following the end of the plan year for employees to submit expenses incurred during the previous year.
The Tax Advantage
The advantage of a Flexible Spending Account is that you don't pay Federal income or Social Security taxes on your contributions before they go into your account, and you don't owe taxes on reimbursement payments to you. In most states, you don't pay state taxes either.*
By participating in the Unreimbursed Medical and/or Dependent Care Spending Accounts, you lower your taxable income, which means that you pay less income taxes. New Jersey State taxes are not exempt for Unreimbursed Medical and Dependent Care Spending Accounts. State taxes are not exempt in Pennsylvania for the Dependent Care Spending Account.
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