Wednesday, October 19, 2011
So that's the low down on a flexible spending account. Sounds pretty good, right? In some ways it's great. Having a flexible spending account means that if you get sick and have to go to the doctor or you have a dental appt., you don't have to worry about having enough money to cover the cost because you already have the money with you on the flexible spending account. Or if you get a prescription filled, you can use the flexible spending account to pay for your medicine! Also money that you put on a flexible spending account cannot be taxed by the federal government. So if you put $3000 on a felxible spending account, that money is not taxed!
So what's wrong with flexible spending accounts you ask? Well several things. For every one thing that sounds good one a flexible spending account, there is something that's bad about having a flexible spending account. Let's see if you agree!
First would have to be the amount of money that you put on a flexible spending account. Currently you can put up to $4000 dollars on a flexible spending account. Starting in 2013, that amount will change from $4000 to $2500. But that's not why I am complaining. When I say the amount of money that's put on a flexible spending account is a problem, what I mean is that you have to "guess" on how much time your going to be sick this year. How much your going to be a the doctor or how much your kids are going to be in the clinic or hospital. How much time your going to be in the dentist. Things like that. My thing is, who in their right mind plans to be sick? Who plans on going to the dentist expecting to have cavities? Who plans on their kids breaking an arm? Who plans like that? I certainly don't and I hope that you don't either. I don't think that there is anybody out there that plans to be unhealthy. The truth is that you cannot plan on things happening. It's like driving in a car and getting in a wreck. Nobody plans to get involved in a wreck! So basically you have to plan on getting sick and guess how much money your going to use that year. Pretty much impossible. If you don't put enough on a flexible spending account, you may have to start digging money out of your own pocket that you might not have. This might get you into trouble in some cases. On the other hand if you put too much on a flexible spending account and don't use it, well in that case your just going to lose it, which is my next topic. Once you set the amount that you want to be put into the flexible spending account you cannot change it unless a qualifying event occurs such as the birth of a child or death of a spouse, etc.
Use it or lose it. One major drawback is that the money must be spent within the coverage period as defined by the benefits plan coverage. This can be different depending on the type of flexible spending account that you have. There are several different types but for the most part, they are typically the same. Some require that the money be used within 12 months while others give you a grace period. The grace period usually is about 3 months but sometimes can be shorter. Any money that is left unspent at the end of the coverage period is forfeited and can be applied to future plan administrative costs or can be equally allocated as taxable income among all plan participants. This is why people call this the "Use it or Lose it" rule. If you want to get technical, if you don't use some of the money and you lose it, they you are taxed on that money. Basically you get taxed on money that you didn't have. Let's say that you put $2000 on your flexible spending account. They give you the $2000 at the beginning of the year. You only use $1000 so you lose $1000. Even though you paid $2000 back through payroll deductions, you still lose that money and then are taxed on the money that "they", the government, took back. Doesn't make a whole lot of sense. I'm not sure why you lose the money at all! If you pay all the money back anyways, why do you lose that money if you don't spend it within a certain time frame? You earned it, right? They just gave it to you in advance, yet you are paying it all back with equal payments. There is not a more devastating feeling than the government taking money away from you that you earned! Well just one other which ties into my last topic.
Finally, a major drawback is where you spend the money. The government has designated where you can spend the money that is on a flexible spending account. The money that is on a flexible spending account must be spent on medical expenses, dental expenses, and prescription costs. In certain cases it can be spent on things like childcare services. Used to, you could spend the money on over the counter medications but as of 2011, this feature has been taken away unless these over the counter medications are prescribed by your doctor of dentist. However, I don't know of any doctor or dentist that prescribe over the counter medications. This is the other reason that a flexible spending account is not a loan. Unlike a loan, you cannot spend it wherever you want. On a loan, you can spend the money where ever you want. The only loans that you can't are a care loan or a house loan.
Audits. This ties in with where you spend the money. Anytime that you use the money, you are subject to an audit. They can audit you every time you swipe the card, or they may never audit you at all. It all up to "them". What boggles me is why the government tells you where you can spend the money. Especially when you earn it. True that they give it to you at the beginning of the year, but if you pay it back then why does it matter where you spend the money? It's your money and you earned it, yet the government tell you where to spend it! In my opinion that's totally wrong! Especially in a free country as we live in. But that's government for you!
So tell me what you think? Am I wrong or does what I'm saying have any merit to it at all?
Sunday, October 16, 2011
Sunday, August 21, 2011
Wednesday, July 13, 2011
So I am really confused about this issue over whether the US Government is going to give Christian Lopez a $14,000 "tax liability" over catching Derek Jeter's 3000th hit ball. Why such a high tax liability? Since Christian caught the ball and it marked Derek Jeter's 3000th hit, the Yankee's gave him what they claim is $50,000 dollars worth of "stuff". So what all did they give him? Let's see, four luxury suite tickets for each of the team's remaining home games, including the postseason, three bats, three balls and two jerseys all signed by Jeter. I'm not real sure the total value of all that stuff, but my guess is that all this stuff is overpriced, especially the stuff that is signed. Oh and speaking of overpriced, I forgot to mention that Christian also received front-row seats for Sunday's game, which the Yankee's report sell for up to $1,358.90 each. If that's not overpriced then I don't know what is.
Now here's where this tax liability becomes really tricky. It's going to be up to the Yankee's and how they classify what they gave to Christian as. If the Yankee's say that what they gave Christian was a prize for catching Jeter's 3000th ball, then he could, and most likely will, get slammed with this $14,000 tax liability. However, if they say that what they gave him was a gift then he won't get the tax liability. Yes, that's right, all this comes down to one simple word. But which one are the Yankee's going to use?
In reality, either word would be correct. So let's look at each definition.
PRIZE - a reward for victory or superiority, as in a contest or competition. Was it a contest? Not really! A competition? Only in the sense that tons of people were all going to the same ball at the same time and it came down to who got the ball first! So in this sense, the Yankee's could say that Christian was given some prizes for catching the ball.
GIFT - something given voluntarily without payment in return, as to show favor toward someone, honor an occasion, or make a gesture of assistance; present. When reading this definition, you know that what the Yankee's did for Christian was to "honor an occasion". Did they expect payment for what they gave Christian? No sir! They fully gave all this stuff to Christian without expecting anything in return. So in this sense, the Yankee's could say that Christian was given some gifts for catching the ball.
Like I said, either one is right, but which one is right to tell the US Government? In my opinion, the Yankee's should classify all the stuff that they gave Christian as gifts! No one wants to be all excited to receive some stuff from your favorite team, just to be slapped in the face by the US Government with a $14,000 tax. If it were me, I would probably wish that I was never at the game. Not an image that the Yankee's would want on any fan. Also, I know that Christian has stated that he will ask his parents for help with the $14,000 if it comes down to that, but what if they don't help or have the money? Then Christian would most likely have to sell some of the stuff that he got for free. Oh but it wouldn't be selling, rather giving it away because the money that he gets is going right back to Uncle Sam. I guess that's what they mean when they say that free stuff really isn't free.
I just hope that the Yankee's make the right decision in whatever decision that they make. If they don't then your going to have people all over the US screaming foul.