Are FSA’s Next on the Chopping Block?
With the government scrambling for revenue during this tough economic time, FSA’s, otherwise known as Flexible Spending Accounts, could be next on Congress’ agenda. Particularly since the Joint Committee on Taxation recently informed the Senate they could collect $68.6 billion over 10 years by cutting the accounts. The IRS estimates that about 30 million people use FSAs, and that the average person earns $60,000 a year and puts aside about $1200.
Critics of FSAs have protested that these accounts are mere tax shelters and encourage wasteful spending. And when you think about it, they aren’t entirely wrong. Money that individuals put into FSAs is contributed tax free, so the government is losing out on a lot of that tax revenue. Plus, it is a “use it or lose it” account; meaning that if you have money in the account at year end, it doesn’t roll over. Congress has recently allowed a grace period until March 15th to use the funds, but even with this, people have a hard time estimating exactly what they will spend on out of pocket health care costs. So when there is money left over, people go out and buy whatever they can think of- like boxes of cold medicine, extra glasses, and a year’s worth of aspirin, not knowing whether they will use it all- hence the wasteful spending.
Economists and health policy analysts are also in favor of cutting FSAs, as they create lots of unnecessary paperwork and require constant monitoring. They say that the costs outweigh the benefits, especially in the lower tax bracket. Money put into FSAs is not subject to Social Security tax, which will lower the benefits you receive at retirement since you paid less in to the system. That is an important thing to think about, especially for those close to retirement.
With Health Care being one of the Hottest Topics on Capitol Hill right now, take advantage of your FSA while you can. Chances are, $68 billion is too good for the government to pass up.