Andrew wrote:
- quote -

As with many details of tax law, there is no clear, common-sense logic
behind it. Due to "open enrollment" restrictions, an employee often has
to commit several months *prior* to the *beginning* of the tax year on a
flex HCRA. Contrast with IRA contributions, which can be made several
months *after* the *end* of the tax year and therefore can be fine-tuned
to exactly maximize results for any particular taxpayer.

Deferred compensation alone is not an adequate explanation, the rule
could just as easily have been, "use it or pay tax on it". Just some
more fodder for your discussion with your congressperson...
[definition: "fodder -- coarse food for cattle, horses, sheep, or
congresscritters" ;-) ]

Advise your daughter to ask the employer about setting up Health Savings
Accounts, which largely avoid this issue (except of course for states
such as California, which despite dozens of attempts, have failed to
conform to federal law for HSA's).

-Mark Bole

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

On Feb 4, 9:18*pm, "Andrew" <and...[at]jkl.com> wrote:
- quote -

The reason that the money has to be used up or forfeited is because of
Internal Revenue Code section 125(d)(2)(A), which says that a
cafeteria plan arrangement (including HCRAs) are not permitted to
provide deferred comensation. If it's any consolation, the
disadvantage actually cuts both ways: if your daughter were to leave
her job and had used up more of the HCRA for the year than she had put
into it, the employer is stuck with the loss.

--Chris

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Andrew wrote:
- quote -


--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

Hopefully this fits in with the guidelines of this tax NG. If not, sorry!

Does anyone know exactly where the rules are (in some Federal tax code,
perhaps) that stipulates the rules regarding HCRA and the fact that if you
don't use up your declared value, you lose the money? And where some
discussion might be that explains WHY that rule is the way it is?

My daughter decided against using the HCRA for her first year in the work
force because she didn't know what her annual bills out of pocket would be
and is nervous about foregoing hard earned cash. Thus, she loses out on the
value of the savings. (I know she could REALLY low-ball the figure, but
then, what's the point??)

Seems to me (without perhaps understanding the reasons) why 'they' could
simply give you the same tax benefit without a third party holding onto your
money, and losing it if you estimate too much. The rules are onerous on
this it is, for this example, causing my kid not to participate.

I don't want to get into a discussion about this here; just the pointers so
I can get into the discussion with my Congress person. I'm pretty annoyed.
Must be something I'm missing.

--
----------------------------- Regards -

- Andrew

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >