When preparing your finances for 2021, make sure to review your workplace benefits for next year before the open enrollment period comes to a close. Your household finances for next year could depend on it. An interesting CNBC article discussed the benefits you can unravel within your workplace health-care and ways to maximize it.
After one of the most difficult and financially stressful years for many Americans, digging back into the details of workplace benefits like health savings accounts, or HSAs, and flexible spending accounts (FSAs) is probably the last thing you want to do.
Overcome that fatigue and get to it.
Every year, we take a brief look at these options and plans, but COVID-19 has greatly changed the optics of these plans. For some, the coronavirus pandemic had led to much higher medical expenses than expected this year. For others, it has prevented them from accessing health care they expected to use, due to community lockdowns and overburdened health-care facilities.
Workplace health-care plans require a fresh look going forward, especially after COVID-19. Talk to your HR rep and discuss the details of options open to you. Below we will touch on a few potential options and benefits you should consider.
The Tax Benefits of HSA’s
First part of your workplace benefits to analyze is HSAs. HSAs, available to savers with a high-deductible plan — that is, one with a deductible of at least $1,400 for self-only health coverage — have three key tax benefits.
First, they allow participants to contribute money to the account either pre-tax or on a tax-deductible basis.
Second, the investable funds accumulate free of taxes. Finally, you can withdraw the money tax-free if it’s used for eligible health-care expenses. You don’t need to spend the balance down each year, as unused funds in the account roll forward, regardless of how much you spend. Employers can also boost your savings with a matching contribution.
The Ins and Outs of Medical FSAs
Medical FSAs share some commonalities with HSAs.Both allow for pre-tax contributions. Balances can also be used on tax-free basis if it’s for qualified medical expenses. In 2020 and 2021, you can contribute up to $2,750 to a medical FSA.
You generally can’t contribute to both an HSA and a medical FSA at the same time.
The major difference between the two accounts is that FSAs have a “use it or lose it” stipulation that requires participants either spend the money they save or forfeit the funds to their employer at year-end. Firms may choose to let employees roll over some of the money — that is, up to $550 for funds from the 2020 plan year — or they may give them a grace period up until March 15 of the following year to use the funding.
Dependent care FSAs
Another area to analyze within your workplace benefits are Dependent Care FSAs. Dependent care FSAs, which help employees offset dependent and childcare costs, have been dramatically affected by the pandemic and resulting community shutdowns. Generally, a worker can save up to $5,000 in one of these accounts on a pre-tax basis, but again, the funds must be used up by the end of the year or they’re forfeited.
Due to Covid-19, daycare centers in many parts of the country have been closed for much of the year. What’s more, many employees found themselves working from home and taking care of their children themselves, which means they could have hefty balances in these dependent care FSAs.
The IRS addressed this situation by allowing employers to give workers the option of changing the amount they’d normally defer in the middle of the year.
That option may not be available next year, so be thoughtful about the money you commit to these dependent care FSAs as you decide how to proceed in 2021.
Given the crazy year we’ve had, it’s important to take a deeper look at all your options when it comes to your workplace benefits. The coronavirus pandemic has shown us what unprecedented circumstances can cause and the importance of taking advantage of all the benefits that are available to you. If you have any questions, please reach out at firstname.lastname@example.org and make sure to also take a look at other tips and advice written in our blogs.