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Unexpected Expenses
Preparing for Costs Insurance Won't Cover
By Megan L. Fowler, MSJ
If you have a chance to participate in a flexible spending plan at work, do it, says College Station, Texas, CPA Debbie Webb. "Whatever you set aside for the plan is free from both income and FICA taxes," she says. For example: Say you are married, and your household income is $100,000. You set aside $1,000 per year in a flexible spending plan for health care. Your combined income and FICA taxes will drop by almost $350. "One way of looking at this is that you get $1,350 of health care for only $1,000," she says. "What a bargain."
In deciding how much to set aside for the plan, try to be realistic in estimating what your medical expenses will be for the year, Webb says. "You are short-changing yourself if you set aside $1,000 when your health care expenses are really going to be $2,000," she says. "On the other hand, if you set aside more than you need for health care, you will lose the money." Say you set aside $1,000, but only have $800 of health care expenses. You will lose the $200 that you didn't use, Webb says. "It is generally better to underestimate than to overestimate your medical expenses," she says.
Note that the only medical expenses you can pay through a flexible spending plan are expenses that would be deductible on your income tax return, such as doctor visits, health insurance, hospital costs and prescription medicines. Over-the-counter drugs are out, and unfortunately, no vet bills allowed.
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