How to handle Flexible Spending Account

How is everyone handling medical Flexible Spending Accounts?

Do you create a new account for each year or do you use the same account from year to year?

Thanks!

George snipped-for-privacy@nospamcomcast.net

Reply to
George Earl
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As someone else observed in this newsgroup years ago, there are actually two accounts needed to track FSA. The year begins with a transfer from one account (liability) to the other (asset) of the amount you have specified for the year. The liability account is your obligated payments to the plan, reduced by your monthly payroll deductions. The asset account is used to track reimbursements; when it goes to zero expect the plan adminstrator to stop making reimbursements (don't stop asking, just stop expecting). Note that this exactly matches the real world, where the entire balance is available for reimbursement the 1st day even though you have made no payroll deductions yet.

If you combine the two in one account, then you don't know either the remaining balance for reimbursements nor how much you still owe the plan.

I'd use the same two accounts each year. Since, for example, 2005 plan transactions can take place early in 2006, I'd date any prior year transactions 12/31 of that year and put the actual date in the memo field. Alternately you could have two pairs of accounts, one for even years, one for odd years.

I suspect most people use one account and trust(!) their plan administrator to keep better records.

dick w

Reply to
Dick Weaver

Thanks, Dick.

I think I understand this.

I created a liability account and an asset account.

In the liability account I entered the beginning balance as a transfer of the specified amount for the year into the FSA asset account.

In the split transaction for my biweekly paycheck I have the deduction for my FSA linked to the liability account so that the balance in the liability account automatically decreases every two weeks.

When I receive a reimbursement payment from my FSA I enter it as a deposit into my checking account which is linked to the asset account so that the balance in the asset account decreases with each reimbursement.

It looks to me like that works. Does it sound right?

George snipped-for-privacy@nospamcomcast.net

Reply to
George Earl

yes - I keep one account - and only care that the balance goes to zero by end of year. I budget zero also for that account. My plan admin shows ongoing balance - and I keep an eye on it and be sure all my reimbursements come in

alan

Reply to
Alan

This is how I did it the last two years in Q99. Now that I have upgraded to Q2006 I'm going to try Dick's two account method. :)

George snipped-for-privacy@nospamcomcast.net

Reply to
George Earl

A couple years ago, Dick advised me on the two account method, and I have to say that it's painless and lets me keep tabs on $$ going in and out without my having to think about it.

Regards,

Margaret

George Earl wrote:

Reply to
Margaret Wilson

I use the one account method (treat it like a Cash Account) and write off (OMG) any differences at the end of the year.

Reply to
Oilcan

Our only difference is probably the vocabulary used; where you write "linked" I'd write about "transfers". The payroll deduction is a transfer to the liability account; a reimbursement is a transfer from the asset account to the checking account.

And, if you are claiming a medical expense tax deduction, don't forget the two year-end adjustment entries.

dick w

Reply to
Dick Weaver

So Dick, I assume at the end of a year, one might have to 'zero' out the asset account as if there is any residual balance in the asset account, you lost it (At least for Health Care Reimbursement accounts).

I do a a question - you say "If you combine the two in one account, then you don't know either the remaining balance for reimbursements ". That isn't true, is it?. If I set up my asset account and simply say the original balance is, for example, $1,000.00, and track reimbursements against it, I

*do* see the declining balance that shows me 'how much I have left'. Am I missing something?

For the past year, I too used the single account - I have the paycheck deduction on auto pilot and really didn't care how much that aggregated for. All I cared about was the initial value I decided to fund for the year, and tracked expenses against that number to ensure I got paid back as much as I was putting in. But like another posted mentioned, the first of the year might be a good time to track both sides.

Reply to
Andrew

At least with Q04, you can't do this because you can you a liability account for the payroll deductions with the Paycheck wizard unless I'm doing something wrong. I just made both accounts asset accounts, accomplished the same thing I guess.

In the past I had used the one account approach, but I like you two account approach because then you can see what you've been reimbursed , or at least what you have remaining to be reimbursed. With the one account approach I had a report to tell me this.

Reply to
Stealth

True. Although you didn't lose "it". Whether you gain or lose on these accounts is determined by comparing to two things: -- if you had not had the account at all. -- if, with perfect foresight, you had chosen the exact amount of reimbursable medical expense for the year.

Given two people, each with $1000 in annual reimbursable medical expense, where one contributes $100 for the year and one contributes $1100, the first has a zero balance at year end, the second writes off $100 -- and the first has lost a lot, the 2nd has lost nothing.

I should have written ".... then the account balance refects neither balance". If I am contributing $1200, $100/mo, and am reimbursed $200 in January:

-- with two accounts, the Jan balances are $1000, -1100. I have $1000 left in reimbursents and still owe $1100. -- with one account, the balance is $100 - 200 = -100 and that balance does not, in itself, convey either balance.

Ah, so your one account was the asset account and the deduction was an expense category (not a transfer), as opposed to one account for both reimbursement and deduction that I assumed above. That works too. The payment (deduction) obligation is not recorded but, as you've noted, you don't need it. For people with large medical payments, say 10K/yr as my family was doing, that would be a 10k Jan spike in net worth (but who cares - on the rare occasion when net worth is important, it is not the number Quicken produces that is wanted).

dick w

Reply to
Dick Weaver

I have just converted to the two-account method. Makes more sense than anything I've tried.

In my state, medical expenses are fully tax-deductible. So if I have $600 of co-pays and etc., and only $500 of that was reimbursed from my flex account, I can write off $100 on my state return. Is there a way to have the flex reimbursements reduce the amount of medical expense that Quicken reports? As far as I can tell, they are transfer transactions and therefore can't have a Category attached to them...

Reply to
Uncle Fester

Thanks Dick - I'll re-read and digest when I can. I appreciate the time you spent in answering me.

Reply to
Andrew

This is how I fudged a bit to get the reimbursements to show as a credit against the medical expense category.

Transfer funds from FSA to Checking, [e.g., $100] Open the Checking transaction and add a split offset to category Cash, [-$100] Add another split entry categorized to your medical expense [$100]

Net is the amount of the transfer but now categorized to medical expense.

Reply to
JM

Ummm, for federal and many states, over-the-counter stuff (which can be big bucks) is not deductable. And there is other non-deductable for many people; the IRS pub on Medical expense has some details.

You're right - it's best/easiest to categorize medical expense when recording transactions with medical providers and the flex reimbursements are just transfers. You don't need to reduce the medical expense that Quicken reports (it's actually useful, I think, to know your total medical expense) -- you just need to reduce tax deductable medical expense.

While many people would already have non-deductable medical categories, you've stated that you don't. So set one up and then, when all reimbursements for the year have been recorded, say for $500, make just two entries, using your most appropriate categories:

tax-deductable-medical-expense -500 not-deductable-medical-expense 500

dick w

Reply to
Dick Weaver

OK, what I should have said was that expenses which are deductible for federal purposes (if they exceed 7.5% of AGI) are fully deductible on the state return. That only complicates matters in Quicken, since flex reimbursements can be used for deductibles as well as non-deductibles (e.g. OTC stuff).

Did I say that? Don't think that was me. In any case, I think I will process every flex reimbursement as it is received - since I will have the request form in front of me, I will know how to split up the reimbursement between a deductibles category and a non-deductibles category. Will have to think about this some more.

Reply to
Uncle Fester

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