Short Report - Flexible Spending

Introduction

This report takes into account the requirement of a company for an implementation of flexible spending accounts for its employees. The leaders and managers of the company are in doubt if flexible spending accounts are a good and feasible measure to be adopted for both, the employees as well as the organization. Having this in view, this report presents the purpose served by the flexible spending accounts and also highlights the advantages and disadvantages of the same with the perspective of the organization as well as the personnel working in the same organization.

Flexible Spending Accounts

A flexible spending account refers to a tax deferred savings account set out by an organization for the purpose of assisting the employees in meeting some particular dependent care and medical expenses which are not covered in the insurance plan of the employer. Flexible spending accounts set out in the Internal Revenue Code under Section 125, were once known as the medical IRAs or Individual Retirement Accounts. The flexible spending accounts permit the personnel in contributing the pre tax dollars to an account established by their organization. Later, they can pull out these funds without paying any tax for the qualified premiums of health insurance, private kindergarten and pre-school expenses, day care provider fees, and out-of-pocket medical costs (Geisel, 2005). Flexible spending accounts impart an appealing or charming benefit for several employees and they also impart tax savings for the employers as well as employees.

With an escalation in the cost for imparting health insurance to the personnel over the passage of last ten years, a number of organizations have extensively raised the portion of employees in the insurance premium. Deductibles and co-pays have also escalated in trying to cope up with the inclusive premium cost. The employment of a health care flexible spending account is one means by which the organizations can assist their personnel in self funding with dollars free of tax, which is the escalating additional cost which is required by them to bear for their health insurance which is partially funded by their organization (Gordon & Helen, 2004).

Advantages

Taxable Income Reduction

The main benefit achieved from the implementation of the flexible spending accounts is the potential tax benefit imparted by them to the users. Contributions are made to the flexible spending accounts with the pre tax dollars which implies that society or federal security tax does not require being paid on such funds. Making contributions on a regular basis to flexible spending accounts can in actual raise an employee's net take home income and cut down the amount owed by them at tax time. Also, the amount withdrawn from flexible spending accounts is free of any tax in the event that the disbursements are employed for paying the qualified medical expenditures. The IRS, as of the year 2010, permits the employees to employ money in a flexible spending account for paying medical expenditures for themselves, their spouses, a child under twenty seven years of age or a qualified dependent (Gould, ...