Many employers offer a medical or a childcare flexible reimbursement account allowing the employee the opportunity to contribute a certain amount of money from each paycheck for the year to be placed into an account dedicated to the purpose of reimbursing medical or childcare expenses. Any medical expenses, other than over the counter items, can be submitted as a claim to be reimbursed. The contributions are deducted before taxes are calculated, thus lowering the taxable income. The result will be a decrease in the amount paid for medical expenses and childcare. For example: an individual in the 15% tax bracket will appear to pay 85% of their medical or childcare expenses costs until the yearly contribution to the account has been achieved.

        The only disadvantage to the reimbursement accounts is that any money remaining in the account at the end of the year will be given to the government, therefore estimate your medical and childcare expenses for the year carefully. Conversely, if you receive reimbursement from the account before the yearly contribution has been met, then you are not responsible to pay the extra amount withdrawn from your account. A possible reason for such an occurrence is when leaving the company.

        Delay an elective medical procedure until the following year to increase your contribution to the medical reimbursement account to accommodate for the estimated medical expenses allowing the opportunity to reduce the amount of taxes paid to the I.R.S.

        Another means to lower your medical costs is when your medical expenses for the year exceeds 7.5% of your adjusted gross income (AGI). You will then be able to deduct the portion of the medical costs exceeding 7.5% of your AGI. Although, the amount contributed to a medical reimbursement account cannot be part of the 7.5% portion of your AGI since the tax benefits are realized in your paycheck. For example: Someone with an AGI of $30,000 and $2,500 in medical costs can deduct $250 ($30,000 * .075 subtracted from $2,500) from their taxes. If $1,000 was contributed to a medical reimbursement account, then the $250 is not deductible.

        Deductible medical expenses include: medication, doctor visits, cosmetic surgery, birth control pills, chiropractor, dental work, glasses, and contact lenses and supplies. Refer to IRS Publication 502: Medical and Dental Expenses at http://www.irs.ustreas.gov for more details.


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