How to handle Flexible Spending Account

[George Earl]

How is everyone handling medical Flexible Spending Accounts?

Do you create a new account for each year or do you use the same
account from year to year?

Thanks!


George
(e-mail address removed)

 

[Dick Weaver]

How is everyone handling medical Flexible Spending Accounts?

Do you create a new account for each year or do you use the same
account from year to year?

Thanks!

As someone else observed in this newsgroup years ago, there are actually
two accounts needed to track FSA. The year begins with a transfer from
one account (liability) to the other (asset) of the amount you have
specified for the year. The liability account is your obligated
payments to the plan, reduced by your monthly payroll deductions. The
asset account is used to track reimbursements; when it goes to zero
expect the plan adminstrator to stop making reimbursements (don't stop
asking, just stop expecting). Note that this exactly matches the real
world, where the entire balance is available for reimbursement the 1st
day even though you have made no payroll deductions yet.

If you combine the two in one account, then you don't know either the
remaining balance for reimbursements nor how much you still owe the
plan.

I'd use the same two accounts each year. Since, for example, 2005 plan
transactions can take place early in 2006, I'd date any prior year
transactions 12/31 of that year and put the actual date in the memo
field. Alternately you could have two pairs of accounts, one for even
years, one for odd years.

I suspect most people use one account and trust(!) their plan
administrator to keep better records.

dick w

 

[George Earl]

As someone else observed in this newsgroup years ago, there are actually
two accounts needed to track FSA. The year begins with a transfer from
one account (liability) to the other (asset) of the amount you have
specified for the year. The liability account is your obligated
payments to the plan, reduced by your monthly payroll deductions. The
asset account is used to track reimbursements; when it goes to zero
expect the plan adminstrator to stop making reimbursements (don't stop
asking, just stop expecting). Note that this exactly matches the real
world, where the entire balance is available for reimbursement the 1st
day even though you have made no payroll deductions yet.

Thanks, Dick.

I think I understand this.

I created a liability account and an asset account.

In the liability account I entered the beginning balance as a transfer
of the specified amount for the year into the FSA asset account.

In the split transaction for my biweekly paycheck I have the deduction
for my FSA linked to the liability account so that the balance in the
liability account automatically decreases every two weeks.

When I receive a reimbursement payment from my FSA I enter it as a
deposit into my checking account which is linked to the asset account
so that the balance in the asset account decreases with each
reimbursement.

It looks to me like that works. Does it sound right?


George
(e-mail address removed)

 

[Alan]

yes - I keep one account - and only care that the balance goes to zero by
end of year. I budget zero also for that account.
My plan admin shows ongoing balance - and I keep an eye on it and be sure
all my reimbursements come in

alan

 

[George Earl]

yes - I keep one account - and only care that the balance goes to zero by
end of year. I budget zero also for that account.
My plan admin shows ongoing balance - and I keep an eye on it and be sure
all my reimbursements come in

alan

This is how I did it the last two years in Q99. Now that I have
upgraded to Q2006 I'm going to try Dick's two account method.




George
(e-mail address removed)

 

[Margaret Wilson]

A couple years ago, Dick advised me on the two account method, and I
have to say that it's painless and lets me keep tabs on $$ going in and
out without my having to think about it.

Regards,

Margaret

 

[Oilcan]

I use the one account method (treat it like a Cash Account) and write
off (OMG) any differences at the end of the year.

 

[Dick Weaver]

...[snip]
In the split transaction for my biweekly paycheck I have the deduction
for my FSA linked to the liability account so that the balance in the
liability account automatically decreases every two weeks.

When I receive a reimbursement payment from my FSA I enter it as a
deposit into my checking account which is linked to the asset account
so that the balance in the asset account decreases with each
reimbursement.

It looks to me like that works. Does it sound right?

Our only difference is probably the vocabulary used; where you write
"linked" I'd write about "transfers". The payroll deduction is a
transfer to the liability account; a reimbursement is a transfer
from the asset account to the checking account.

And, if you are claiming a medical expense tax deduction, don't forget
the two year-end adjustment entries.

dick w

 

[Andrew]

As someone else observed in this newsgroup years ago, there are
actually two accounts needed to track FSA. The year begins with a
transfer from one account (liability) to the other (asset) of the
amount you have specified for the year. The liability account is
your obligated payments to the plan, reduced by your monthly payroll
deductions. The asset account is used to track reimbursements; when
it goes to zero expect the plan adminstrator to stop making
reimbursements (don't stop asking, just stop expecting). Note that
this exactly matches the real world, where the entire balance is
available for reimbursement the 1st day even though you have made no
payroll deductions yet.

If you combine the two in one account, then you don't know either the
remaining balance for reimbursements nor how much you still owe the
plan.

I'd use the same two accounts each year. Since, for example, 2005
plan transactions can take place early in 2006, I'd date any prior
year transactions 12/31 of that year and put the actual date in the
memo field. Alternately you could have two pairs of accounts, one for
even years, one for odd years.

I suspect most people use one account and trust(!) their plan
administrator to keep better records.

dick w

So Dick, I assume at the end of a year, one might have to 'zero' out the
asset account as if there is any residual balance in the asset account, you
lost it (At least for Health Care Reimbursement accounts).

I do a a question - you say "If you combine the two in one account, then you
don't know either the remaining balance for reimbursements ". That isn't
true, is it?. If I set up my asset account and simply say the original
balance is, for example, $1,000.00, and track reimbursements against it, I
*do* see the declining balance that shows me 'how much I have left'. Am I
missing something?

For the past year, I too used the single account - I have the paycheck
deduction on auto pilot and really didn't care how much that aggregated for.
All I cared about was the initial value I decided to fund for the year, and
tracked expenses against that number to ensure I got paid back as much as I
was putting in. But like another posted mentioned, the first of the year
might be a good time to track both sides.

 

[Stealth]

At least with Q04, you can't do this because you can you a liability account
for the payroll deductions with the Paycheck wizard unless I'm doing
something wrong. I just made both accounts asset accounts, accomplished the
same thing I guess.

In the past I had used the one account approach, but I like you two account
approach because then you can see what you've been reimbursed , or at least
what you have remaining to be reimbursed. With the one account approach I
had a report to tell me this.

 

[Dick Weaver]

Dick Weaver wrote:
...[snip]

If you combine the two in one account, then you don't know either the
remaining balance for reimbursements nor how much you still owe the

So Dick, I assume at the end of a year, one might have to 'zero' out the
asset account as if there is any residual balance in the asset account, you
lost it (At least for Health Care Reimbursement accounts).

True. Although you didn't lose "it". Whether you gain or lose on these
accounts is determined by comparing to two things:
-- if you had not had the account at all.
-- if, with perfect foresight, you had chosen the exact amount of
reimbursable
medical expense for the year.

Given two people, each with $1000 in annual reimbursable medical
expense, where one contributes $100 for the year and one contributes
$1100, the first has a zero balance at year end, the second writes off
$100 -- and the first has lost a lot, the 2nd has lost nothing.

I do a a question - you say "If you combine the two in one account, then you
don't know either the remaining balance for reimbursements ". That isn't
true, is it?. If I set up my asset account and simply say the original
balance is, for example, $1,000.00, and track reimbursements against it, I
*do* see the declining balance that shows me 'how much I have left'. Am I
missing something?

I should have written ".... then the account balance refects neither
balance". If I am contributing $1200, $100/mo, and am reimbursed $200
in January:

-- with two accounts, the Jan balances are $1000, -1100. I have
$1000 left in reimbursents and still owe $1100.
-- with one account, the balance is $100 - 200 = -100 and that
balance does not, in itself, convey either balance.

For the past year, I too used the single account - I have the paycheck
deduction on auto pilot and really didn't care how much that aggregated for.
All I cared about was the initial value I decided to fund for the year, and
tracked expenses against that number to ensure I got paid back as much as I
was putting in. But like another posted mentioned, the first of the year
might be a good time to track both sides.

Ah, so your one account was the asset account and the deduction was an
expense category (not a transfer), as opposed to one account for both
reimbursement and deduction that I assumed above. That works too. The
payment (deduction) obligation is not recorded but, as you've noted, you
don't need it. For people with large medical payments, say 10K/yr as my
family was doing, that would be a 10k Jan spike in net worth (but who
cares - on the rare occasion when net worth is important, it is not the
number Quicken produces that is wanted).

dick w

 

[Uncle Fester]

I have just converted to the two-account method. Makes more sense than
anything I've tried.

In my state, medical expenses are fully tax-deductible. So if I have
$600 of co-pays and etc., and only $500 of that was reimbursed from my
flex account, I can write off $100 on my state return. Is there a way
to have the flex reimbursements reduce the amount of medical expense
that Quicken reports? As far as I can tell, they are transfer
transactions and therefore can't have a Category attached to them...

 

[Andrew]

dick w

Thanks Dick - I'll re-read and digest when I can. I appreciate the time you
spent in answering me.

 

[JM]

This is how I fudged a bit to get the reimbursements to show as a
credit against the medical expense category.

Transfer funds from FSA to Checking, [e.g., $100]
Open the Checking transaction and add a split offset to category Cash,
[-$100]
Add another split entry categorized to your medical expense [$100]

Net is the amount of the transfer but now categorized to medical
expense.

 

[Dick Weaver]

I have just converted to the two-account method. Makes more sense than
anything I've tried.

In my state, medical expenses are fully tax-deductible.

Ummm, for federal and many states, over-the-counter stuff (which can be
big bucks) is not deductable. And there is other non-deductable for
many people; the IRS pub on Medical expense has some details.

So if I have
$600 of co-pays and etc., and only $500 of that was reimbursed from my
flex account, I can write off $100 on my state return. Is there a way
to have the flex reimbursements reduce the amount of medical expense
that Quicken reports? As far as I can tell, they are transfer
transactions and therefore can't have a Category attached to them...

You're right - it's best/easiest to categorize medical expense when
recording transactions with medical providers and the flex
reimbursements are just transfers. You don't need to reduce the medical
expense that Quicken reports (it's actually useful, I think, to know
your total medical expense) -- you just need to reduce tax deductable
medical expense.

While many people would already have non-deductable medical categories,
you've stated that you don't. So set one up and then, when all
reimbursements for the year have been recorded, say for $500, make just
two entries, using your most appropriate categories:

tax-deductable-medical-expense -500
not-deductable-medical-expense 500

dick w

 

[Uncle Fester]

In my state, medical expenses are fully tax-deductible.

Ummm, for federal and many states, over-the-counter stuff (which
can be big bucks) is not deductable. And there is other
non-deductable for many people; the IRS pub on Medical expense
has some details.

OK, what I should have said was that expenses which are deductible for
federal purposes (if they exceed 7.5% of AGI) are fully deductible on
the state return. That only complicates matters in Quicken, since flex
reimbursements can be used for deductibles as well as non-deductibles
(e.g. OTC stuff).

While many people would already have non-deductable medical
categories, you've stated that you don't.

Did I say that? Don't think that was me. In any case, I think I will
process every flex reimbursement as it is received - since I will have
the request form in front of me, I will know how to split up the
reimbursement between a deductibles category and a non-deductibles
category. Will have to think about this some more.