5 Great Workplace Tax Breaks: Get These Savings Now
Another type of IRA that employers can establish are Simplified Employee Pension (or, SEP) IRAs. SEP-IRAs are very flexible and can be established by employers for any size from business businesses to large size employers. SEP-IRAs are typically less costly to set up than traditional retirement accounts. What makes SEP-IRAs special is that only your employer contributes. This may or may not be a good thing — in tough times, your employer may decide not to contribute to SEP-IRA. If you decide to leave your employer, you are fully vested and have full ownership over your funds. Annual contributions are limited to the lesser of 25 percent of employee compensation or $52,000 in 2014.
3. Pay for Your Health Benefits
Retirement isn’t the only way you can reduce your tax bill by pre-allocating your salary. You can also avoid paying taxes on the a predetermined portion of your salary that you spend on medical expenses.
Let’s start with the basics. In an employer-sponsor health plan, your employer typically covers the majority of the premium costs. Employers typically cover 85 percent of premiums for employees and 75 percent for dependents. The employee is then responsible for paying the remaining coverage. A word to the wise: if your benefits are offered through a “section 125 cafeteria plan,” you can pay your premiums in pre-tax dollars. This helps you save on tax today and pay for your medical benefits. Typically, there is an open enrollment in the previous calendar year to sign up for your health benefits.
Health insurance premiums aren’t the only way you can save on taxes. Flexible Spending Accounts (or, FSAs) and health savings accounts (or, HSAs) let you pay for medical expenses you know you’ll have with before-tax dollars.
As mentioned, FSAs let you set aside before-tax dollars to cover “qualified expenses.” As discussed in our post End the Year Right with These Simple Tax Tips, the two most popular types of FSAs are healthcare and transit. During your employer’s open enrollment (typically in November, or before year-end) you can choose how much money will be deducted from your paycheck in the coming year. To be reimbursed, you most likely need to submit a receipt to your employer or upload it to the flex spending account. Looking for a more convenient way to pay medical expenses? Some larger companies offer debit cards.