2021 City of Hutchinson Benefit Guide FINAL - 11-20-20

17 Flexible Spending Accounts The Empower Flex Plan Saves City of Hutchinson EmployeesMoney Joining the Empower Flex Plan allows you to save 25% to 40% in taxes for expenses you will incur over the coming year in the areas of medical expenses which are not covered by your insurance plan (such as copayments, deductibles, prescription drugs, eyeglasses, dental expenses, etc.) and dependent care expenses. By signing up for the Empower Flex Plan, you agree to set aside a portion of your pretax salary in a Flex Plan account, and that money is deducted from your paycheck throughout the plan year. The amount you contribute to the Empower Flex Plan is not subject to social security (FICA), federal, state or local income taxes. This means that at the end of the year, your W-2 will reflect a lower taxable income. You don’t have to do anything special or fi le any additional forms at tax time to capture the savings. Since through your Empower Flex Plan participation you have saved on taxes, your spendable income will increase. Medical Maximum: $2,750 Dependent Care Maximum: $5,000 Plan year: January 1, 2021 – December 31, 2021 IRS Extension “Use it or lose it” is almost a thing of the past! Your plan has an “extended” Plan Year. After your current Plan Year ends on December 31, 2020 you have until March 15, 2021 to incur new expenses which will spend down any remaining funds from the previous Plan Year. In essence, this means that instead of a 12 month Plan Year, your Plan Year is actually 14 ½ months. Your Plan has a 90 day grace period after the Plan Year in which to submit claims. How to Save onDependent Care When you sign up for the Empower Flex Plan Dependent Care option, you may use pretax dollars to pay for qualified dependent care expenses for your children under age 13 or caring for elderly dependents. The annual Dependent Care maximum is $5,000 (or $2,500 if married and filing separately) per calendar year. The Medical and Dependent Care accounts are separate. You may choose to participate in one, both or neither. The IRS provides the rules and regulations by which Flex Plan accounts are administered. Choose Your ElectionCarefully You may only enroll in the Flex Plan during open enrollment. Then, during the Plan Year, you may only change your enrollment if you have an IRS qualifying event such as a birth, death or divorce. Any funds remaining in your account at the end of the Plan Year + Extension period will be forfeited (see “IRS Extension” above). Flex Plan Savings Example John and Mary’s combined gross income is $30,000. They have two k ids and file their income taxes jointly. Since the couple expects to spend $1,800 in dental work and medical expenses and $3,500 for day care in the next plan year, they decide to direct a total of $5,300 into their Empower Flex Plan. No Flex Plan With Empower Flex Plan Gross income $30,000 $30,000 Flex Plan contributions $0 -$5,300 Gross income $30,000 $24,700 Estimated taxes Federal -$2,550* -$1,755* State -$900** -$741** FICA -$2,295 -$1,890 After-tax earnings $24,255 $20,314 Eligible out-of-pocket medical and dependent care expenses -$5,300 $0 Remaining spendable income $18,955 $20,314 Spendable income increase -- $1,359 * As s umes standarddeductions and four exemptions. ** Varies, as sume 3 percent. The example above is for illustrative purposes only. Every situation varies and it is recommended you consult a tax advis or for all tax advice.