Smart decisions about your employee benefits can increase your actual income by thousands of dollars each year. To do so wisely, select among employer-sponsored plans for health care, out-of-pocket spending for health and dependent care, life insurance, disability, long-term care, and retirement. These decisions often requireyou to calculate the tax-sheltered aspects of the employee benefits. Your benefits packagemight also include dental and vision care, child care, elder care, subsidized foodservices, and an educational assistance program
An employee benefit is compensation for employment that does not take the form of wages, salaries, commissions, or other cash payments. Examples include paid holidays, health insurance, and a retirement plan. The value of employee benefits often amounts to 30 percent or more of one’s salary. Some employee benefits are tax sheltered, such as flexible spending accounts and retirement plans. Tax sheltered in this situation means that the employee avoids paying current income taxes on the value of the benefits received from the employer. The taxes may be postponed, or deferred, until a later date (usually a good idea) perhaps until retirement, when the individual’s income tax rate might be lower.
Flexible Benefit Plans Offer Tax-Free Money
A flexible benefit plan, also known as a cafeteria plan, is an employer-sponsored plan that gives the employee a choice of selecting either cash or one or more qualifying nontaxable benefits. For example, an employer might offer $2500 annually to each employee to spend on one or more benefits, and you pay no income taxes on the value of the benefits. A flexible benefits plan might offer dependent care, adoption assistance, medical expense reimbursements, insurance, or transportation benefits. Employees select the benefits they want. Employees working for employers that offer a cafeteria plan avoid having to pay out-of-pocket money for certain expenses
Making Decisions About Employer-Sponsored Health Care Plans
Many employers offer: employees a choice of health care plans. Employees usually can make a decision to change health plans once a year as well as when one’s family situation changes, such as marriage. The premium for an unmarried employee could be $5000 or more annually depending upon the amount of coverage provided. Fortunately, the premiums for employees are either paid for entirely or subsidized by the employer. Some employers pay perhaps the first $3000 of annual premiums for employee health care coverage and require that employees pay the remainder. Partly because of soaring costs of health care coverage, employers often offer multiple policies. These can range from an expensive plan, perhaps with a $6600 premium that offers comprehensive coverage requiring little out-of-pocket spending by the employee to an inexpensive high-deductible health care plan, perhaps with a $3100 premium, requiring larger out-of-pocket health care spending by the employee. The deductible is the amount paid to cover expenses before benefits begin. Employees, especially healthy ones, hope to save money on premiums by choosing these policies
Younger employers, particularly those who are typically healthy, often select highdeductible plans to save on the cost of premiums. For example, if an employer pays only the first $3000 in health care premiums for employees, an employee selecting the high-cost plan described previously has to pay $3600 ($6600 $3000) annually, or $300 a month in premiums. This contrasts with a $100 annual premium for employees who select the high-deductible plan ($3100 $3000). If the person experiences lots of health care expenses, he/she will have to pay additional costs.
Some employers also offer health savings accounts (HSAs). This special savings account is intended for people who have a high-deductible health care plan (with annual deductibles of at least $1000 for individuals and $2000 for families). Employees make tax-deductible contributions to a savings account to be used for eligible expenses. Employers may also contribute. The employee invests HSA funds and the money in the account grows tax free. Withdrawals are made to pay for medical expenses. The limits on contributions to an HSA savings account are $2900 per year for individuals and $5800 for families. Th money in the account does not vanish if you don’t spend it within a certain time period.
The tax-advantaged aspect of making a health care plan choice adds another dimension to making the best personal financial decision. Because many workers have an effective marginal tax rate (discussed earlier in the chapter) of nearly 40 percent, that same percentage can be saved or not spent by giving it to the government in taxes. The worker who contributes $3000, for example, to a health savings account saves approximately $1200 ($3000 0.40), further reducing his or her health care expenses.
An employee benefit is compensation for employment that does not take the form of wages, salaries, commissions, or other cash payments. Examples include paid holidays, health insurance, and a retirement plan. The value of employee benefits often amounts to 30 percent or more of one’s salary. Some employee benefits are tax sheltered, such as flexible spending accounts and retirement plans. Tax sheltered in this situation means that the employee avoids paying current income taxes on the value of the benefits received from the employer. The taxes may be postponed, or deferred, until a later date (usually a good idea) perhaps until retirement, when the individual’s income tax rate might be lower.
Flexible Benefit Plans Offer Tax-Free Money
A flexible benefit plan, also known as a cafeteria plan, is an employer-sponsored plan that gives the employee a choice of selecting either cash or one or more qualifying nontaxable benefits. For example, an employer might offer $2500 annually to each employee to spend on one or more benefits, and you pay no income taxes on the value of the benefits. A flexible benefits plan might offer dependent care, adoption assistance, medical expense reimbursements, insurance, or transportation benefits. Employees select the benefits they want. Employees working for employers that offer a cafeteria plan avoid having to pay out-of-pocket money for certain expenses
Making Decisions About Employer-Sponsored Health Care Plans
Many employers offer: employees a choice of health care plans. Employees usually can make a decision to change health plans once a year as well as when one’s family situation changes, such as marriage. The premium for an unmarried employee could be $5000 or more annually depending upon the amount of coverage provided. Fortunately, the premiums for employees are either paid for entirely or subsidized by the employer. Some employers pay perhaps the first $3000 of annual premiums for employee health care coverage and require that employees pay the remainder. Partly because of soaring costs of health care coverage, employers often offer multiple policies. These can range from an expensive plan, perhaps with a $6600 premium that offers comprehensive coverage requiring little out-of-pocket spending by the employee to an inexpensive high-deductible health care plan, perhaps with a $3100 premium, requiring larger out-of-pocket health care spending by the employee. The deductible is the amount paid to cover expenses before benefits begin. Employees, especially healthy ones, hope to save money on premiums by choosing these policies
Younger employers, particularly those who are typically healthy, often select highdeductible plans to save on the cost of premiums. For example, if an employer pays only the first $3000 in health care premiums for employees, an employee selecting the high-cost plan described previously has to pay $3600 ($6600 $3000) annually, or $300 a month in premiums. This contrasts with a $100 annual premium for employees who select the high-deductible plan ($3100 $3000). If the person experiences lots of health care expenses, he/she will have to pay additional costs.
Some employers also offer health savings accounts (HSAs). This special savings account is intended for people who have a high-deductible health care plan (with annual deductibles of at least $1000 for individuals and $2000 for families). Employees make tax-deductible contributions to a savings account to be used for eligible expenses. Employers may also contribute. The employee invests HSA funds and the money in the account grows tax free. Withdrawals are made to pay for medical expenses. The limits on contributions to an HSA savings account are $2900 per year for individuals and $5800 for families. Th money in the account does not vanish if you don’t spend it within a certain time period.
The tax-advantaged aspect of making a health care plan choice adds another dimension to making the best personal financial decision. Because many workers have an effective marginal tax rate (discussed earlier in the chapter) of nearly 40 percent, that same percentage can be saved or not spent by giving it to the government in taxes. The worker who contributes $3000, for example, to a health savings account saves approximately $1200 ($3000 0.40), further reducing his or her health care expenses.
.
0 comments:
Post a Comment