Tax Advantages of the Program
The Flexible Benefits Program provides an opportunity for you to pay eligible health and dependent care expenses on a before-tax basis.
Advantages for Dependent Care Expenses
Under the Internal Revenue Code, you can obtain a tax advantage for dependent care expenses by paying for them with the tax-free dollars you put into your Flexible Spending Account – Dependent Care, or by claiming them as a tax credit on your federal income tax return forms.
You cannot use both methods for the same expenses. The amount you contribute to a Flexible Spending Account – Dependent Care will reduce, dollar-for-dollar, the amount you may claim as a tax credit. Consult a tax advisor for details.
If you pay federal income taxes, Social Security taxes, and Massachusetts state income taxes, in many cases the Flexible Spending Account – Dependent Care will generally be more advantageous than the federal dependent care tax credit, depending upon income level and number of dependents.
We encourage you to talk to a tax advisor to help you determine whether the Flexible Spending Account – Dependent Care or the federal dependent care tax credit is more advantageous to you.
Advantages for Health Care Expenses
The Flexible Spending Account – Health Care will be appropriate for you if you expect to have eligible uninsured medical expenses below 7% of your adjusted gross income in the coming calendar year. Expenses below this level are not deductible for federal income tax purposes. As a result, the Flexible Spending Account – Health Care may offer you an advantage that you cannot duplicate on your tax return.
Of course, your own tax situation will dictate exactly what the reimbursement accounts can do for you. For more specific information about how these reimbursement accounts may apply to you, we encourage you to talk to a tax advisor.
Potential Impact on Your Social Security Income
Your participation in the Flexible Benefits Program will have the effect of reducing your Social Security taxable wages by the value of your designated salary reduction amount. This results in immediate tax savings to you. It could also serve to reduce your future Social Security benefits.