On December 22, 2017, The Tax Cuts and Jobs Act was signed into law. The information in this article predates the tax reform legislation and may not apply to tax returns starting in the 2018 tax year. You may wish to speak to your tax advisor about the latest tax law. This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.

Article Highlights

  • Employer dependent care benefits allow you to exclude up to $5,000 in childcare expenses from your wages.
  • Employer health care plans allow you to exclude the cost of insurance for you and your family from your wages.
  • Employer 401(k) plans allow you to set aside $17,500 ($23,000 if you are 50 years or over) per year, tax deferred for your retirement.
  • Employer flexible spending arrangements allow you to pay up to $2,500 of medical and dental expenses with pre-tax dollars.
  • Employer’s education assistance plans allow the employer to reimburse you by up to $5,250 tax-free for education expenses.
  • Employer stock purchase or option plans allow you to acquire the employer’s stock at favorable prices.
  • Employers can provide certain transportation, commuting, and parking costs free of tax.

Employers have the option of providing a number of tax-advantaged benefits to their employees. The following is a rundown of those benefits. You may wish to check with your employer to see if the company provides any that interest you. Generally, larger employers provide these benefits.

  • Dependent Care Benefits – If you incur childcare expenses so that you can work, you should check to see if your employer has a dependent care program. If dependent care benefits are provided by your employer under a qualified plan, you may be able to exclude up to $5,000 ($2,500 if Married Filing Separately) of child care expenses from your wages, which generally provides a greater tax benefit than the child care credit.
  • Health Care Insurance – Many employers offer income-excludable group medical and even dental plans. Generally, everyone, under the Patient Protection Act, will be required to have basic affordable health insurance in 2014 or face penalties on their tax return. If you are currently uninsured, utilizing your employer’s plan may be your best option to avoid a penalty.
  • Adult Children’s Health Care Insurance – Employers are allowed, but not required, to provide insurance coverage for your children under the age of 27. If allowed under your employer’s plan, enrolling your young adult children in your employer’s medical insurance is an option to get them covered, and at the same time, avoid their penalties for being uninsured in 2014.
  • 401(k) or Similar Retirement Plans – If your employer has a 401(k) plan, you can elect to defer (pre-tax) a maximum of $17,500 for 2013. If you are 50 years or older, the maximum is increased to $23,000. These plans are especially beneficial when the employer provides a matching contribution.
  • Flexible Spending Accounts – Some employers provide flexible spending accounts, which allow an employee to make contributions on a pre-tax salary reduction basis to provide coverage for up to $2,500 of medical and dental expenses.
    However, the participant must use the contributed amounts for qualified expenses, or else forfeit any amounts remaining in the account at the end of the plan year. Medical expenses paid for or reimbursed through pre-tax plans cannot be deducted as part of itemized deductions on your tax return.
  • Educational Assistance Programs – An educational assistance program provided by your employer can provide up to $5,250 per year of educational assistance benefits that can be excluded from your income. If you have been thinking about continuing your education and your employer offers an educational assistance program, taking advantage of it is a great way to make going back to school more affordable.
  • Stock Purchase and Option Plans – A variety of plans available to employers are designed to allow the employees to invest in the employer’s stock at favorable prices. The most commonly encountered are:
    (1) Employee stock ownership plan (ESOP);
    (2) Nonqualified stock option; and
    (3) Incentive Stock Options (ISOs). Note: Because of the tax ramifications, it may be prudent for you to consult with this office prior to exercising a stock option, especially an ISO.
  • Tax-Free (income excludable) Employee Fringe Benefits – If the employer provides them, the law allows an exclusion from the employee’s taxable income for the following benefits:
    (1) The cost of up to $50,000 of group-term life insurance.
    (2) $245 (in 2013) per month for qualified parking.
    (3) $245 (in 2013) per month for transit passes and commuter transportation.
    (4) $20 per month for bicycle commuting expenses.
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