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  1. #1
    Join Date
    Dec 2008
    Posts
    2

    Default Flex Plans and Social Security

    I hope that someone can give me some advice...I live in Minnesota and I have had my insurance costs increase dramatically. Typically, health inurance premiums are automatically flexed at my place of business. Then, we have the option of electing to flex amounts for medical not paid for by the insurance up to $3000. My question is because these are pretax dollars and reduce my taxable income, will this also reduce the amount of my income that my social security is based on for the year? Because I do not pay social security taxes on the flexed amount (which would be at least $8000) would my social security be based on my salary minus the $8000. If is is a reduction, how much would it be approximately? If there is a reduction, would it be better to pay for the insurance with taxed dollars and then use the medical deduction when I file taxes?

  2. #2
    Join Date
    Oct 2006
    Posts
    16,474

    Default Re: Flex Plans and Social Security

    Quote Quoting maria33
    View Post
    I hope that someone can give me some advice...I live in Minnesota and I have had my insurance costs increase dramatically. Typically, health inurance premiums are automatically flexed at my place of business. Then, we have the option of electing to flex amounts for medical not paid for by the insurance up to $3000. My question is because these are pretax dollars and reduce my taxable income, will this also reduce the amount of my income that my social security is based on for the year? Because I do not pay social security taxes on the flexed amount (which would be at least $8000) would my social security be based on my salary minus the $8000. If is is a reduction, how much would it be approximately? If there is a reduction, would it be better to pay for the insurance with taxed dollars and then use the medical deduction when I file taxes?
    I don't like flex accounts because they are usually a "use it or lose it" situation. So, I would be likely to opt out of a flex account for that reason alone.

    There is usually not an option on how to handle the actual insurance premiums.

  3. #3
    Join Date
    Dec 2008
    Posts
    2

    Default Re: Flex Plans and Social Security

    I know what you are saying about the "use it or lose it" clause. It requires a lot of planning. The premiums are automatically flexed here unless you choose not to have them flexed. I have been able to budget in the past so have never lost money on my additional flex amounts. I am concerned however about flexing the high premiums I will have to pay and the deductibles that I also will have to pay; will it affect my social security amounts when I retire?Will my salary for this year be $8000 lower (or whatever amount I flex) and therefore will my benefit generated from this year be significantly lower? Again, if anyone could help me with that, I would appreciate that.

  4. #4
    Join Date
    Dec 2007
    Location
    Ohio
    Posts
    2,006

    Default Re: Flex Plans and Social Security

    I found this...I think it answers your question...if not, lmk.
    This very favorable tax treatment has encouraged workers to participate in flexible spending accounts, when available, and to contribute as much as possible to them. While the accounts can provide significant tax benefits, workers need to be aware of two possible disadvantages:

    Contributions that are not used to pay eligible expenses are forfeited. In other words, a worker who contributes too much to his or her flexible spending account loses the excess contributions forever.
    For workers earning less than Social Security's maximum taxable amount ($90,000), contributions to flexible spending accounts may reduce the worker's future Social Security benefits. Because the contributions are not subject to Social Security tax, the taxable wages reported to the Social Security Administration are reduced. Those reported wages are used to determine future benefits.
    While most workers are well informed with regard to the first possible disadvantage, few are aware of the second. In part, this is because the situation with flexible spending accounts is different from the situation with 401(k) plans, which are also very popular. In that case, contributions are free of Federal income tax (when paid into the 401(k) plan) but still subject to Social Security and Medicare tax; thus, the taxable wages reported to Social Security do not change, and neither do future benefits.

    The reduction in future Social Security benefits due to making contributions to a flexible spending account is difficult to determine and varies from worker to worker. In most cases, the value of the tax savings exceeds the value of the benefits lost by a considerable margin. Still, workers should be fully informed as to the consequences of their actions.


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