- Dependent Care Benefits – A taxpayer who works and incurs child care expenses, should check to see if their employer has a dependent care program. If the employer does provide dependent care benefits under a qualified plan, the taxpayer may be able to exclude up to $5,000 ($2,500 if Married Filing Separately) of child care expenses from his or her wages, which generally provides a greater tax benefit than the child care credit.
- 401(k) or Similar Retirement Plans – If an employer has a 401(k) plan, the employee can elect to defer (pre-tax) a maximum of $18,000 for 2016 and 2017. If age 50 or older, the maximum is increased to $24,000.. These plans are especially beneficial when the employer provides a matching contribution.
- Flexible Spending Accounts – Some employers provide health flexible spending accounts (FSA), which allow an employee to make contributions on a pre-tax salary reduction basis to provide coverage for medical and dental expenses. The maximum allowed for 2015 is $2,550 (up from $2,500 for 2014. The participant generally must use the contributed amounts for the qualified expenses, or else forfeit any amounts remaining in the account at the end of the plan year. However, some plans allow a 2 ½ month grace period, and a plan may allow up to $500 of any year-end health FSA balance to be carried over to pay or reimburse qualified medical expenses incurred in the next year. Medical expenses paid for or reimbursed through pre-tax plans cannot be deducted as part of itemized deductions.
- Education Assistance Programs – If you are receiving educational assistance benefits through an educational assistance program provided by your employer, up to $5,250 of those benefits can be excluded from income each year.
- 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. The most commonly encountered are:
(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 – Provided the employer provides them, the law allows an exclusion from taxable income for the following benefits:
(1) The cost of up to $50,000 of group term life insurance.
(2) $255 (in both 2016 and 2017) per month for qualified parking.
(3) $255 (in both 2016 and 2017) per month for transit passes, and commuter transportation.
(4) $20 per month for bicycle commuting expenses.