Charles E. Schneider CPA, Ltd.
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Flex Benefit Plans

    

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  Also known as cafeteria plans or Section 125 plans, these are the arrangements with your employer that allow you to pay for certain benefits with "pre-tax" dollars.  Common uses are for medical insurance, medical costs not covered by insurance, life or disability insurance, and day care costs.

In the course of preparing tax returns, I've seen a surprising number of people not using these plans even though their employers offer them. And these are intelligent people too.  I have to conclude that this is because the human resource departments who typically inform employees about these plans, haven't been effectively communicating just what a good deal they are. 

Since you are at this web site looking for ideas to save money, I'm going to show you how to save perhaps thousands of dollars using flex benefit plans.  Let's say you pay $5,000 a year or more for day care costs.  Furthermore, let's assume you are a Minnesota taxpayer in the 28% Federal tax bracket and 7% Minnesota tax bracket.  Don't forget about FICA/Medicare that takes another 7.65% of your income.  If you add up all these tax bracket percentages, you find that you are taxed at over 42% on each additional dollar of income.

If you use your flex benefits plan to pay the $5,000 day care costs, you are going to save about $2,100 in taxes every year!  That's net cash savings.  It's just like getting a 42% discount from your day care provider.  In reality, its not the day care provider giving you a discount, it's the government giving you a subsidy.  So, if the government is offering you a subsidy for something you are going to do anyway, by all means take it!  

Lasik surgery is another cost which should be paid through a flex benefits plan if possible.  The bottom line is, use these plans whenever possible.  It's like getting free money from the government.