Is a Flexible Spending Account Worthwhile?
For many of us, flexible spending accounts are the only way to get a tax break for medical expenses since they are only deductible to the extent they exceed 7.5 percent of our adjusted gross income. If you contribute to a flexible spending account it will reduce your adjusted gross income in the eyes of the tax man, which lowers your federal, FICA and, frequently, state taxes. The current annual maximum contribution allowed by the IRS is $5,000 if you are a single parent or married and filing jointly; $2,500 if you are married and filing separately. (The regulations also allow your employer to cap the maximum contribution amount below the IRS numbers). Of course, your expenses may be lower than these maximum but if you can reduce your taxable income a few thousand each year that’s more money in your pocket. The Dilemma Due to current IRS rules you lose any money you contribute in a plan year that is not spent for approved medical expenses by the end of the year. An article by Bankrate.
