In terms of a Flexible Spending Account (FSA) set up by your employer or the corporation you own, I realize the IRS has a “Use it or Lose it” attitude toward the money in the account.
my question is… #1 - how much can you contribute to the FSA?
#2 - who gets the lost money if you do not use it? the corporation/ employer or the IRS, or???
thanks in advance for all of you CPA’s who can answer this question ;D
There is no IRS limit; but limits are usually established within the plan itself.
The employer, although the third party administrator may get a cut. You are choosing to take a benefit in lieu of compensation (that’s why you save the taxes). That agreement is between you and the employer (or technically the employer’s plan that is funded by the employer). So, if you estimate incorrectly, that’s your business. The employer is not obligated to pay you more taxable compensation.
However, if you are thinking of doing this for “your” corporation, I’d suggest having a Health Reimbursement Arrangement “HRA”. It avoids all that third party administrator and “use it or lose it” bs, as the employer writes the checks, can carry-over and can be more flexible. The company can pay or reimburse all of your medical expenses and it is considered a non-taxable fringe benefit to the employee.
I think Pub 969 or 996 has more info.
Oh, and it has to be a valid employee/employer relationship for the FSA or the HRA.