Released: December 19, 2006

Trim taxes with flex accounts

Source: Mary Beth Franklin, Kiplinger's

‘Tis the season for millions of employees to sign up for flexible spending accounts to pay for next year’s childcare and medical bills with pre-tax dollars. In the past, if you didn’t clean out your account by December 31, you forfeited any unused funds.

Now, the IRS allows a 2½-month grace period to spend your flex funds until the following March 15 - if your employer allows it.

Salary that goes into these reimbursement plans dodges federal income and social security taxes and, in most states, state income tax, too. Put the maximum $5,000 into a plan to pay childcare bills that you have to pay anyway, and you would save nearly $2,000 in taxes (assuming a 25% federal bracket, 5% state bracket and 7.65% Social Security tax.) A dependent-care account also can be used to pay for help for an elderly parent or other family member who lives with you.

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