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Hello,

I filed my tax return last year with TurboTax and the software recommended that I consider a flexible spending account for my day care expenses instead of taking the $960 maximum credit I receive for my two children. We are in the 28% tax bracket and will pay over $7000 next year in day care expenses for my two children. It definitely seems to me that I can keep more of my money if I use the FSA but want to know a few more things about it. I know about the "use it or lose it" rules but would like to solicit some feedback from others about any positive or negative things they've encountered with these accounts. Some questions I have are what happens if I or my spouse gets laid off? Will we have to continue contributing to this account? Is the process of filling out those darn vouchers a pain and are you reimbursed in a timely manner? Since my family's total medical expenses in a year due not trip the 7.5% threshhold for itemizing medical expense deductions, would setting up a flexible spending account for medical expenses also be prudent?

My insurance open enrollment period is going on now so I'd appreciate everyone's input and hope that others can learn more about this topic.
If there is an article on this site concerning this topic, can someone point me to it? I've looked in the tax topics and performed a general site search but have bben unsuccessful to this point. Thanks. Later...
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We are in the 28% tax bracket and will pay over $7000 next year in day care expenses

Just to quantify the difference, here are the numbers. The max you can put into a FSA for child care is $5000. So your tax savings is your tax bracket (27.5% for 2001) times the $5k max, which equals $1375. Subtract the max child care credit (since you give that up) of $960, and you get a potential tax savings of $415.

What happens if I or my spouse gets laid off? Will we have to continue contributing to this account?

The contributions by the laid off spouse would cease. You can only contribute from your wages while you are an employee.

Is the process of filling out those darn vouchers a pain and are you reimbursed in a timely manner?

That will depend entirely on your benefits administrator. Some are great. Some are so bad that the tax savings doesn't seem worth it. Most are inbetween. The best resource is your co-workers. Try asking some of them about their experience. Just remember to temper their experience with what you know about their ability to follow directions. <grin> I suspect a lot of problems stem from failing to send in complete and correct claim forms.

Since my family's total medical expenses in a year due not trip the 7.5% threshhold for itemizing medical expense deductions, would setting up a flexible spending account for medical expenses also be prudent?

It's certainly a consideration - even if you were over the 7.5% threshold. The big difference is the predictibility of the expenses. Child care is pretty easy to predict. You know pretty close what your expenses will be, and that they'll be quite even through the year.

Medical expenses are harder to predict. With 4 of you, there's a certain amount of prediction - dental cleanings, check up's, perhaps glasses or orthodontics - plus you know that some number of doctor visits are inevitable. Add up your out of pocket for these items as a starting point. How much to go beyond this is a matter of your risk tolerance - balancing the "use it or lose it" risk against the potential tax savings.

--Peter <== celebrating 1,000 posts by posting something useful instead of just an announcement.
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>celebrating 1,000 posts by posting something useful instead of just an announcement.

Way to go, Peter!

I'd add that the only time I've been disappointed in FSAs is when I haven't elected a large enough amount, like now, when we've already used up what I estimated for the whole year.
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Some questions I have are what happens if I or my spouse gets laid off?

My wife contributes to the FSA (not available through my job) and my understanding is: if she was laid off, the contributions would stop and we would submit our expense up until she was laid off. Indicating the difference could still be lost.

Is the process of filling out those darn vouchers a pain and are you reimbursed in a timely manner?

The form we use requires the company name, my wife's (the employee) name and address, work phone number, SSN and then we have to write in my daughter's name, the name of the daycare facility (someone watching children in their own home without a license - would NOT qualify - VERY IMPORTANT to determine this BEFORE starting the FSA), the covered dates and amounts.

It's a pain for me to keep after the daycare facility to provide receipts on a timely basis. They used to provide them once a week, then switched to a statement off their computer - when they get around to printing them. If I left it up to my wife to submit the claims...the FSA wouldn't be a benefit at all...but I digress.

Our administrator only cuts checks twice a month, the 15th and the 30th. The claims must be received at least 2 days prior to those dates.

You must be able to contribute to the FSA and still pay the daycare facility, then submit your claims. Not everyone will find this aspect beneficial - it can put a cramp into the old budget.

We currently participate in the medical FSA to pay for braces (orthodontic) and then stop using the medical side when the braces are removed.

Odee

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It's a pain for me to keep after the daycare facility to provide receipts on a timely basis. They used to provide them once a week, then switched to a statement off their computer - when they get around to printing them.


My HR lady sent a soft copy of the FSA re-imbursement form. I print it, fill it out & get the Day Care provider to sign it. She usually takes a minute to check the amount paid to date (keeps a register for records) and signs it. I give it to her when I pick up my child at the end of the day, and pick it when I drop her off the next day...

- Donna.
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