8 MIN READ
Many employers are starting to offer lavish perks to attract employees - the ability to work remotely, on-site gyms, and unlimited time off are becoming increasingly common. But there are also more common employee benefits that people don’t know about. These benefits have been around for a long time and can save you thousands of dollars a year. They can also add significant value to your well being. Do you know about these benefits? Have you used them?
A Dependent Care Flexible Savings Account (FSA) Can Save You Thousands On Childcare
What Is It?
Dependent Care FSAs (DC FSAs) are pre-tax benefit accounts set up through your employer that can help pay for eligible “dependent care services” like summer day camps, daycare, preschool, and babysitting that you to pay for in order to work or look for work.
How Does It Work?
The money that is contributed towards your DC FSA is not subject to payroll taxes and goes directly towards any eligible out-of-pocket expenses necessary for you to continue working.
When you enroll in a DC FSA through your employer, funds are withheld from your paycheck and then deposited into the FSA before taxes are deducted. You pay for the relevant expenses out-of-pocket and then apply for a reimbursement from your DC FSA.
In order to get your reimbursement, you usually need to complete a claim form and include the associated receipts. The receipt needs to state the dependent’s name, date of the expense, the amount paid, and the full name, address, and tax identification number of the person/organization that provided the care.
Come tax season, your employer will give you a Form W-2 that lists the total amount of dependent care benefits that you received during the year under their plan in box 10. Any dependent care benefits over $5,000 in your wages shown on your W-2 will be shown in box 1.
The amount of these benefits should be included in Part III line 12 of the Form 2441 if you want to claim any exclusions from your income.
What Can You Use It For?
DC FSAs are used to pay for the dependent care expenses of a child under the age of 13 or a spouse/person unable to take care of themselves if the care is necessary for you (and your spouse if filing jointly) to work or find work
As long as you have all of the relevant receipts, DCFSAs can be used to pay for:
Before or after school programs and associated costs
Au pairs, work-related babysitting and nannies
Daytime child care
Preschool programs and associated costs
Summer day camps
Any child care/dependent care that is required for you to work or look for work is eligible. See the IRS documentation for more details and examples of qualifying expenses and expenses that are specifically excluded
What Amount Can You Contribute?
The annual limit for married filing jointly is $5,000. The annual limit for individuals or married filing separately is $2,500.
What Should You Consider?
The IRS also offers a tax credit for dependent care expenses up to $3,000 for one child/dependent and $6,000 for two or more children/dependents. Consider how you could still apply the tax credit or if it’s worth ditching the DC FSA altogether. Example: If you have two children and your relevant childcare costs hit or exceed the $6,000 limit for the tax credit, you can claim the $1,000 not covered by your DC FSA (up to $5,000).
FSAs including DC FSAs are “use-it-or-lose-it”, meaning that any money in the account that isn’t used by the end of the year will be lost. In some cases, your employer may allow you to rollover over $500 of your unused FSA funds from one year to the next.
You have to re-enroll every year! There is no automatic enrollment.
You can only change the amount you contribute/have withheld from your wages for an FSA during a 31-day window around a “qualifying event” like the birth or adoption of a child, which can restrict flexibility and requires some extra planning.
How Much Can It Save You
DC FSAs save taxpayers an average of 30% on dependent care services. The higher your tax bracket, the more you will save with the pre-tax benefits and income exclusions.
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Legal Insurance Can Save You Money On Routine or Surprise Legal Expenses
What Is It?
Legal insurance will pay for routine and unexpected legal expenses that come up in everyday life. When offered by your employer, legal insurance usually comes in the form of a group insurance plan that you pay into as a part of your employee benefits. An example of a company that offers legal insurance is Hyatt Legal Plan. Legal insurance is often compared to health insurance, but usually doesn’t have many usage limitations, co-pays, or deductibles. Sometimes it’s referred to as legal protection insurance (LPI) or prepaid legal plans. (PPL).
What Does It Cost?
The cost to employees is usually around $20 per month, but that cost can vary depending on the plan chosen by your employer. Check with your employer to find out how much it would cost to take advantage of this benefit.
What To Watch Out For?
Review your company’s plan to see what services are and aren’t included and how much each service is covered. Some services will be totally covered, while others will be offered with discounts. Know that large plans offered by employers are often customizable and may not include key services. For example, your employer might not cover things like legal counsel for worker’s compensation or unemployment compensation.
When Would You Use It?
Legal insurance is used for all sorts of legal services:
Buying and selling homes
Adoption, Estate Planning, and other family planning matters
Preparing legal documents like contracts and wills
Dealing with home improvement and contractor issues, traffic tickets, and other small legal issues
Remember that some services are not included. Make sure you identify what your plan will cover to see if it’s worth it
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Commuter Benefits Can Make Your Commute Much Cheaper
What is it?
Commuter benefits are provided by your employer to help pay for commuting costs related to getting to and from your place of work.
How does it work?
Your employer will usually use a third party vendor like WageWorks to administer a commuter benefits program. This vendor will provide you with a debit card or vouchers that can be redeemed for transit passes and qualified parking. The value of the benefits may be deducted from your wages up to the limit each month on a pre-tax basis. Some programs offer extra flexibility which allows for selective use of your share of the commuter benefits in an “on-demand” fashion to help prevent wasting benefits.
These Benefits Can Even Sometimes Be Used On Uber And Lyft!
Depending on your employer, mass-transit expenses can include ridesharing services like Uber and Lyft (usually for UberPool and LyftLine).
How Much Can You Contribute?
You can “set aside” up to $265 towards pre-tax mass transit benefits and $265 towards pre-tax parking benefits per month (for 2019) through your employer commuter benefit account.
How Much Can It Save You?
You total savings will depend on how much you spend per month on your commute and your tax bracket. For example: If you’re in the 35% tax bracket and you spend around $200 a month on commuting expenses, you could save $200*.35 = $70 per month.
Matching Contributions To Charities Make Your Philanthropy Go Much Further
What is it?
Some companies will match your contributions to a charitable, non-profit organization up to a certain amount.
How does it work?
Companies who have matched-giving benefits will match your donations according to the rules of their program. For example, companies like Gap match donations dollar-for-dollar up to $10,000. Each company will have their own set of rules and specifications about how much they’ll match and which organizations are eligible. You can’t double-count your deductible charitable donations for tax purposes! If you contribute $1,000 and your employer matches that, you can only deduct $1,000 on your 1040.
Subsidized or Free Back Up Care For Family Members Can Help You In A Pinch And At The Right Price
What Is It?
Back Up Care programs provided by your employer allow you to find care for your children or loved ones at the last minute when your usual plans fall through. These programs have reliable care networks with prescreened providers that can be reached quickly to arrange discounted or free last minute care that would normally be very expensive.
How Does It Work?
Let’s say your usual daycare’s heating breaks, your nanny is super sick, or some other significant inconvenience occurs that requires immediate assistance. Using your employers back up care network, you can find in-home or in-center care providers either for free or at a fraction of the regular cost very quickly. Employers usually have some sort of limitation on how much you can use the back up care programs. Sometimes the limitations apply to a certain number of free incidences, and then any remaining uses of the program has associated costs, usually per day and may have a maximum number of days per year. Double check with your provider to find out the rules for your specific program.
Taking advantage of these lesser-known benefits can help you save a ton on regular expenses. Check with your employer to see if any of these benefits apply to you.