Agenda 11/25/2008 - Laserfiche WebLink

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Legal Limits Certain limits apply. Medical Care Flexible Spending Account There are no federal income tax law limits for the Medical Care Flexible Spending Account; however, the City of Martinsville and Martinsville City Schools limit your contribution to $5004. If your spouse has such a plan through his or her employer, you may use both Health Care Flexible Accounts but you may not submit the same expenses to both accounts. Medical Care Flexible Spending Account VS. the Federal Income Tax Reduction When you contribute to a Medical Care Flexible Spending Account, you lower your federal income tax, your Social Security tax, and state income tax. Another way to lower your federal income tax is to take a tax reduction for eligible medical expenses when you file your income tax return. If you use the Medical Care Flexible Spending Account, you save money right away. If you take a deduction for health care expenses, you claim your savings at the end of the tax year. Generally, you must spend at least 7.5% of your adjusted gross income on health care expenses to be able to claim the tax deduction. Any expenses reimbursed via the Medical Care Flexible Spending Account cannot be used as a health care deduction on your federal income tax. Which method is best for you depends on your personal situation. You are encouraged to talk to a professional tax advisor before making your contribution decisions. Dependent Care Flexible Spending Account Under federal law, if you participate in the Dependent Care Flexible Spending Account and your spouse participates in a similar account through his or her own employer, your combined annual contributions to the account cannot exceed $5,000. This limit applies whether you have one or more dependents receiving care. If you and your spouse file separate income tax returns, the most each of you may contribute is $2,500. In addition, if you are married, your Dependent Care Flexible Spending Account contributions may not exceed the annual income of the lower-paid spouse. For example, if you earn $30,000 a year and your spouse earns $2,800, you cannot contribute more than $2,800 to your Dependent Care Flexible Spending Account. In general, you may not participate in the Dependent Care Flexible Spending Account if your spouse does not work outside the home. There are two exceptions: If your spouse does not work outside the home and is physically or mentally unable to care for himself or herself, or if he or she is a full-time student. In either of these cases, the IRS assumes your spouse's earned income to be: · $200 a month ($2,400) if you have one dependent; or · $400 a month ($4,800) if you have two or more dependents. As a result, these are the maximum amounts you may contribute to the Dependent Care Flexible Spending Account. If you participate, it is your responsibility to comply with the above limits. 3