Put more money in your pocket

FSAs remain viable option to lower your taxes in 2007

Flexible spending accounts (FSAs) are a great way to reduce your taxable income and set money aside to pay for health care and/or dependent care expenses.

FSA deductions are taken from your pay on a pretax basis, which reduces your taxable income. You pay less in taxes and have money set aside to pay for your out-of-pocket expenses.

By establishing a health care FSA, the funds deducted from your pay are available for you to cover the cost of eligible medical, dental, or other health care expenses for you and your immediate family members. Copays for office visits, prescription drugs, and over-the-counter medications can be paid for with a health care FSA. You can use a dependent care account to pay for day care expenses for your children under age 13 while you work or attend school. A dependent care FSA also can be used to pay for eligible elder care expenses.

IRS modifies FSA debit card guidelines

The ADP FlexDirect debit card has made it more convenient to access your FSA dollars and pay for eligible expenses at the point of sale. However, updated Internal Revenue Service (IRS) guidelines will change the way staff can use FSA debit cards.

Beginning Jan. 1, 2007, cardholders will experience an increase in the number of instances when they will be asked to submit receipts to ADP FlexDirect, the FSA administrator, even for purchases that have been made in the past without substantiation, such as refills for prescription drugs. It is critical that you save your receipts for all FSA card transactions and submit your receipts to ADP when requested in order to document your claim.

If documentation is not received by ADP in the requested timeframe, the transaction will be deemed an ineligible expense, and you will be required to reimburse the plan.

Additionally, the FlexDirect cards will be limited to those businesses designated as health care-related merchants and to those vendors who use a special reporting system to identify items purchased. Health care-related merchants include physician offices, dental offices, hospitals, and most pharmacies.

It is unclear if the debit cards will be accepted at pharmacies located within a retail store. Currently, the majority of nonhealth care-related retailers do not report the necessary information to identify the items purchased so that the transaction can be verified as an eligible purchase from an FSA.

As in the past, eligible expenses can always be submitted for reimbursement using a paper claim. While this may reduce the convenience a little, the tax savings remain the same.

UPMC continues to work with ADP to streamline the documentation process and to reduce the number of receipts that you will need to submit to ADP.

For more information on enrolling in an FSA or changes on the use of the debit card, review your customized Open Enrollment information available through My HUB or log on to the Benefits section of UPMC Infonet (http://benefits.infonet.upmc.com).

Return to list of stories in this issue