Although tax season had just ended and the sting (for some) of owing federal income tax is still smarting, it is not too late to begin thinking about the future. Many employers now offer Flexible Spending Accounts (FSAs) that have an amount chosen by the employee for the upcoming year. For example, during open enrollment (typically during the fall for most), your employer will allow you to choose the amount to be in your FSA. The employer will then make that amount to be allowed in full from day 1 of the new year and you fund it back throughout the next year. The FSA can be used for qualified medical expenses (you can find information at http://www.irs.gov) that are incurred for the year.
These funds are withdrawn pre-tax.
That means that it will lower your taxable income for the year so that the money you spend on eligible expense will be used tax free. For example, if you designated $1,000 to be in your FSA, the full $1,000 is available on January 1 of the designated year. If you are in the 24% tax bracket, that $1,000 is not taxed, or you have saved $240 on your income tax responsibility for that year.
The challenge is to have only the amount you need to use taken out because it is a "use it or lose it" type of program. If you have $1,000 taken out of your checks during a year yet you only use $500 of that money. You have lost $500. Stay tuned for updates that will help you to judge what you will need.
