As a working professional, your contributions to Social Security are designed to insure that a stable form of income exists during your retirement years. The money deducted from your paycheck finds its way into a larger pool that acts as a safety net for the country's older population. Social Security contributions are not the only form of long-term financial planning available to you, however. A flexible spending account (FSA) is also available to eligible employees, and can act as a highly adaptable form of saving and financial planning. Understanding and identifying flex account benefits, as well as the opportunities provided by Social Security, will help ensure that you make smart decisions with your money throughout your working years.
Social Security and Flex Account Benefits
If you have worked for at least 10 years in a job outside of the federal government, you will most likely be eligible for Social Security benefits. These benefits cover a variety of critical areas, including disability benefits, dependent benefits and survivor benefits. The money you receive from Social Security can only be taxed if your income exceeds a specific threshold. With that in mind, individuals who may be worried about their financial health once they no longer are employed will likely be able to enjoy Social Security benefits with little to no taxation.
Unlike Social Security benefits, a flexible spending account acts as a yearly reserve for up to $2,650 of income per employer. This money can be used for a variety of qualifying expenses, some of the most popular being unexpected medical bills, medication or deductibles and co-payments. One of the distinct differences between flex account benefits and Social Security benefits is that money stored in an FSA does not accrue beyond the current financial year. Any funds left inside of an FSA beyond the financial year and offered grace period expire will be lost. This, of course, severely limits the extent to which these funds can be used. However, one of the unique advantages of flexible spending accounts is that any money deposited in an FSA is transferred before payroll taxes. With that in mind, using an FSA can help you lower your annual income and, consequently, your yearly tax obligations.
Obtaining Your Benefits
In order to take advantage of flex spending benefits, you will have to confirm your interest in the program during the open enrollment period with your employer. Once you have done this, you will have the opportunity to specify the scope of your contribution. As mentioned previously, you can contribute up to $2,650 to your FSA on a yearly basis. Any voluntary contributions made to your FSA are in addition to the mandatory Social Security contributions.
Reporting Your Activity
There are currently no tax reporting requirements connected to an FSA account. Since FSA benefits are paid for using your own income withholding, your FSA funds do not need to be documented on any additional IRS forms. With that in mind, you can deploy these funds as needed without any extensive documentation needed. You will report your income on IRS Form 1040.