With the tax day filing deadline looming on April 17, many Americans are looking for strategies to help save money and pay less in taxes. Benefits managers are well positioned to help them do both by educating more employees about consumer-directed benefit accounts, including flexible spending accounts (FSAs) and transit benefits.
These accounts, which allow participants to set aside money before taxes for expenses on health care, dependent care and commuting to and from work can save participants up to 40 percent on eligible expenses. They also provide an extra bonus at tax time by reducing the amount of taxable income for participants. That means a bigger refund from Uncle Sam after filing taxes as well as year-round savings for participants.
While these accounts can save participants thousands of dollars in the long-run, they’re still vastly under-utilized. Historically, only 20 percent of workers who have the option to use these accounts actually do so, according to my company, WageWorks, a leading provider of tax-advantaged programs.
In order to boost enrollment, benefits managers should spend time explaining the programs to their employees. Many currently un-enrolled employees are simply unaware of the savings these accounts offer. Below is a brief description of each type of account that can guide your explanations to employees and help them save next tax day and for years to come.
- Health Care FSAs – These accounts allow participants to save on common health care expenses not covered by insurance, such as prescription drugs, co-pays, dental visits and contact lenses with pre-tax payroll deductions. The average participant saves more than $500 annually by setting aside an average of roughly $1,500 dollars before taxes to cover health care expenses.
- Dependent Care FSAs– These accounts allow participants to set aside up to $5,000 annually per household before taxes to cover expenses to care for children and other dependents so that parents can work. Popular uses include babysitters, before and after school care, summer camps and care for elderly dependents.
- Commuter Accounts – These accounts give participants the option of setting aside money for the daily commute to work and can be modified on a month-to-month basis. Currently, commuters who drive to work are allotted a pre-tax contribution of $240 for parking while commuters using mass transit can set aside $125 a month.
Everyone knows dealing with taxes is about as much fun as seasonal allergies, but hopefully saving as much as possible while help ease any taxpayer blues.