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Federal employees can now put aside up to $4,000 in pre-tax money to pay for certain health care expenses, the Office of Personnel Management announced Friday.

Flexible spending accounts (FSAs) let employees set aside pre-tax dollars for certain expenses not already covered by regular health insurance, such as co-payments, deductibles, laser eye surgery and dental work. When OPM introduced the FSA program earlier this year, it set the maximum at $3,000, but officials decided recently to raise the ceiling, said Frank Titus, OPM's assistant director for insurance services.

Employees can also set aside up to $5,000 in dependent care accounts for child care and elder care costs. Elder care includes nursing care for elderly parents who rely on the account holder.

An employee with an FSA contributes money to the account, pays for medical services up front and then submit receipts to his or her agency, which reimburses the employee from the account. There is a "use-it-or-lose-it" element to FSAs. Under Internal Revenue Service rules, employees must forfeit any money they don't use in a calendar year.

"This decision will allow federal employees to reap even more benefit from the FSA program," National Treasury Employees Union President Colleen Kelley said. "Each year federal employees, like all Americans, spend a fair amount of money on out-of-pocket medical expenses. This increase will allow FSA enrollees to enjoy additional savings from the program."

OPM has extended the end date of the open season to enroll in the program for 2004 to Dec. 15 to accommodate the change, Titus said. Federal employees who opted to enroll in the program before the announcement have until then to make changes to their account. Titus also stressed that federal employees participating in the program now need to re-enroll if they want to continue in 2004.

"This is different than what happens with health benefits. If you're happy with your health benefits account, you don't have to do anything and you have the same enrollment as you did in the prior year. But with FSA accounts you have to enroll every year," Titus explained.

To date, 17,590 federal employees have signed up to open flexible spending accounts in 2004, according to Titus.

To estimate how your tax bill might be affected, use this calculator. For more information about covered expenses, see IRS Publication 502 (for medical expenses) and IRS Publication 503 (for dependent care expenses).

Check out GovExec.com's Open Season Guide for more information on the FSA program and Federal Employees Health Benefits Program.

COMMENTS

• WOW! What a deal!! Another payroll deduction!! FERS Retirement, Thrift Savings Plan, Social Security, Federal Tax, State Income Tax, and Flexible Spending Account...combined federal campaign, buy a bond, Insurance Premium, and a little in the bank? The individuals making the decisions obviously don't have a clue to life in the middle class. The income taxes this would save in no way offset the amount you must deposit. Middle class families do not have $300 a month to put in a flexible spending account. Thanks for the offer, but as for me, I will pass. R Whetstein Posted February 25, 2004 10:13 AM
• This is the type of stuff Congress goes through to get votes! Why not make medical expenses deductible on federal tax returns for up to $5,000 plus medical insurance premiums? That would make it available to everyone on the same basis and avoid all the costs of implementation of the program. However, Congress may not get as much credit when votes have to be purchased. Let's get real with all the non-tax features! 1. Allow deduction on the tax returns for interest earned and dividends paid. Also lower the capital gains tax to 10% and the holding period to one year for all capital gains. That covers the need for education and retirement tax free plans. We could get rid of each and allow the people to handle the accounts in any way they desire. Potential problem is that they will spend the money and not have it for education or retirement. Also, the tax free interest and dividends could be limited to $10,000 per year. 2. Get rid of the deduction of home mortgage interest other than on a purchase loan for the first home! Limit the deduction to $15,000 per year maximum. People still could cashout the equity in their homes but would not get a tax deduction for doing so because once they refinance they give up the entire tax deduction. 3. Allow people to deduct the first $5000 of medical cash outlays plus health insurance premiums on their itemized tax returns. Get rid of the flexible spending plans and all the administrative costs of the programs. Also allow people to deduct $5000 for child care cash payments on their tax returns and get rid of the flexible spending programs for child care. Congress keeps making things more and more complex and they should get rid of all these programs and simply make them deductible on the tax return. The standard deduction is there to take care of these things and we should not have separate programs for them. It now takes a CPA to handle the tax return and each of the special investment programs for education, retirement, home mortgage structure and refinance, and special trusts. GovExec.com reader Posted December 9, 2003 8:00 AM
• Let's see, I have four separate accounts for retirement, another two for education, and I have to keep up with all the IRS paperwork associated with these accounts. Now I am expected to maintain a separate account for medical expenses and the paperwork associated with that as well? Give me a break! For those of you that have an extra $4000 lying around not doing anything, congratulations, this FSA program may work for you. In fact $4000 will buy a pretty good supplemental insurance plan. But for the rest of us, there is a bill sponsored by 58 Democrats and 3 Republicans (H.R.577) that will increase the government's contribution for federal employee health insurance from 72% to 80%. Let your congressman know the importance of passing this bill and you can keep your turkey of a flexible spending account. GovExec.com reader Posted December 2, 2003 10:50 AM