Give yourself a raise next year

The time is right to put a little extra cash in your paycheck next year.  It's easier than you think.

• Did you know that you can make certain payroll deductions from your pre-tax income? 
• Has you Human Resources department at you employer mentioned this previously?
• Did it sound like too much trouble or something you just didn't think seemed like it was worth the effort?

The truth is an action you take once a year can benefit you all year long.  You can deduct your health insurance premiums and potentially other deductions out of that pre-tax income.  This is open enrollment time for flex benefit plans, so it's time to act now.

What is a Flex Benefit Plan?

It is also known as a cafeteria plan, flex plan or a Section 125 plan.  It allows you to set aside a certain amount of your income before taxes are withheld.  During the year you can have access to the account to reimburse certain healthcare and dependent day care expenses that you would normally pay out of your regular income.   

I don't get it, how does this benefit me?

Here is an example.  Gary makes $2,000 a month and decides to participate in his employer's Flexible Benefits Plan.  As a result his insurance premiums and healthcare/dependant daycare expenses are paid using pre-tax dollars giving him an extra $100/month.  Here's why:

So what expenses are allowed?

Due to a recent change, not all over the counter medications are allowed, but there still are a number of uses for the funds in the account.

• Deductibles, Co-pays and prescription drugs
• Expenses not covered by insurance
• Dental Services and Orthodontics
• Eyeglasses, contacts, solutions and eye surgery
• Weight loss programs (dual use, requires a doctor's prescription)
• Chiropractic Services
•  Psychiatric care and Psychologist's Fees

OK I'm warming up to the idea, is there anything else I need to know?

It is important to take a serious look at your past expense history and also any expenses you see over the following year.  This is an annual deduction and the funds must be used during that year and will not carry over (except for the grace period allowed by the plan during the beginning of the next year).  It is a delicate balance of planning the right amount to make the funds last during the course of the year without having a lot left over, but giving you the most benefit.  It's always best to underestimate slightly.  If you find yourself with an excess as you approach the end of the year you can always order that new pair of glasses/contacts you've been putting off or schedule that appointment with the dentist for the dental work you just aren't looking forward to. 

If you are interested in taking advantage of a Flexible Benefits Plan talk to your Human Resources Department to see if your employer offers such a plan.  If they do not it may be a worthwhile suggestion.  The information I have included in this article may not represent the terms of every plan out there, so you should consult the appropriate people to learn the particulars of your plan.  I personally took advantage of this with my employer about 3 years ago and I'm happy I did, so I'm hoping you find this advice useful.