Is Flexible Spending Account exempt?

[tools2teach]

I am planning to enroll $3000 into the flexable spending account for a deduction of $250. This would decrease my income. Is this exempt?

[AngelinaCat]

I am planning to enroll $3000 into the flexable spending account for a deduction of $250. This would decrease my income. Is this exempt?

Hi tools, before I can answer, I need to know what this is.

Thanks

[tools2teach]

Basically is a health benefit that deducts $250 from my paycheck for a annual spending of health care that would not be covered over a years period. Example..My wife and I trying to get pregnant, but fertility procedures are not covered under my health plan. The $3000 covers what is not covered by my insurance. This is all pre-tax.

[AngelinaCat]

Is this a Medical Savings account type of thing? I have my nolopress.com C7 book here, but I don't know how to look it up.

Also, I need to ask what state you are in. That can/may make a difference.

[tools2teach]

I think that is another term for it. My guess is yes. It is a medical savings account.

[Flamingo]

What it is is an account held via your employer through the employer or an outside agency they contract with to withhold the amount you determine to be withheld from your paycheck to cover medical costs that are out-of-pocket that you pay during the covered year. For example, if you have $3,000 withheld in increments during the year from your paycheck, those funds are used toward medical bills you incur that you pay for (i.e., dental bill not covered by your insurance of $1,000). You would submit that balance to the Flex account folks after all insurance payments are made and they would send you a check for the $1,000. Of course you are paying the $1,000. The $3,000 is withheld pretax so it is a tax savings. If you do not utilize the entire $3,000 in the year indicated you lose it; however, many plans now extend to March 31st of the following year if you still have funds left over at the end of the calendar year. What you do not use, you lose.

What this is is a savings account for you to withhold money pretax (tax advantage and savings) to cover out-of-pocket certain medical costs. The $3,000 will be deducted on a monthly, weekly or bi-weekly basis (however you are paid) and held each month in the account. That amount is reduced as bills are submitted.

Since this deduction reduces your taxable income, you need to bring this to the attention of your attorney who will handle it appropriately for your situation.

[cupcake]

I am planning to enroll $3000 into the flexable spending account for a deduction of $250. This would decrease my income. Is this exempt?

Are you asking if having $250 deducted from each paycheck decreases your monthly income by $250 to get under the state median or to pass the means test? If so, I don't think so. It doesn't change your gross income; it's just part of your paycheck being put aside in your flex spending account pre-tax to pay for future medical expenses. You still earned that money and you will still rely that income. Or, are you asking if the money that's being held in your flex account, the unused balance, is an exempt asset or a legitimate expense for your schedule J? I think the answer to both of those questions is yes.

And, like Flamingo said, you really need to pass this by your attorney.

[happy_ira]

I am planning to enroll $3000 into the flexable spending account for a deduction of $250. This would decrease my income. Is this exempt?

Not exactly.

I mean, you can definitely try to list this as an expense on line 4d of Schedule I and in Part V of Form 22A (Means Test), but, in my humble opinion, if any case trustee or US trustee looks at this, they'll bounce it out.

Here is why (based on my experience): I have the same "flex spending account". One can elect to save anywhere from $100 up to $5,000 per year (IRS regulation). In return, as you have medical expenses you apply them against this, and receive pre-tax dollars back. It's a great thing if you have a good sense of how many medical expenses you might have for the year. And, in your case, if you know you are trying to get pregnant, then you have an idea of how much it will cost. (Side note: kids are a heck of a lot more expensive than any of this... it's a shame there is not a "kids flex spending" for life. )

BUT, any trustee will look at this line and say: "Hey, wait a sec. You are claiming the federal/state standard for healthcare *and* you are also reducing your income by flex spending, which I know you get back. So, you are artificially reducing your income by a discretionary account."

I was advised NOT to list flex spending accts on my scheds. In your case, I would list the add'l medical expenses you expect (as a result of fertility treatments) in the correct line items. No one is going to give you a hard time over trying to get pregnant and start a family; it is way too sensitive of an issue. But, if you stick in a flex spending acct, it might look a bit curious. I would shove these expenses into Line 7 on Sched J; and Line 31 on the Means Test.

Just my $0.02. Not sure if I explained it clearly above, but I would be very careful with *any* deductions from income that could be deemed discretionary. You dont want your case riding on a few line items that, if questioned, changes your Means Test significantly.

Then again, if the rest of your case is straightforward, the trustee's office who reviews your case prior to the 341 might not notice this flex spending. But why risk it?