How does an Flexible Spending account figure in on your Taxes?

Question

have the Flexible Spending account with my employer. How does this affect my wages and income when filing my income tax return with a Flexible Spending account? Does it affect it at all? If so, since its tax deferred, does it go against what I made this year?

Answer 1

Flexible spending account is also been referred to as Section 125 plan or cafeteria plan.

If it is an employer provided benefits and not include such amount in taxable income, you have to reduce the amount of expenses eligible for the credit by the amount excluded from income.

If there is an amount of child or dependent care benefits shown in Box 10 of your W2, you will have to complete Part II of form 2441 or Schedule 2 if you are filing 1040 or 1040A, respectively.

Part of the benefit might be taxable. If the benefits provided exceeds the smallest of
1. amount of your qualified expenses
2. lesser of the tax payer's or the spouse's earned income or
3. $5000 ($2500 if married filing separately).
The amount exceeded should be added to your wages (Line 7 of 1040 or 1040A with DCB written on the dotted line).

You may want to have a professional tax preparer do the specific form for you this year.

Best wishes.

Answer 2

Contributions to a flexible spending account are deducted before taxes from you pay. The amount shown on your W-2 is after the deduction. You don't need to adjust for it when you file your taxes. The first answer was incorrect is stating any 'excess' in the account may be taxable. You loss any unused money in the flexible spending account at the end of the year. Therefore, you have no benefit to tax.