This week in the Budget Life! series, we are going to continue our review of a pay stub.  In the image above, you will see my pay stub details.  I’ve scrambled many of the details, but you can see the main headings.  Let’s get back to it.

Pay Stub Details – Deductions

Deductions are broken into two categories in your pay stub details, before tax and after tax.  Before tax deductions are those are taken out of your pay check before Uncle Sam gets his hands on your money.  After tax deductions mean that you pay taxes on it before it is deducted from your pay check.  The advantage of before tax deductions is no taxes.  Yippee!.  However, after tax deductions are advantageous in the sense that you do not typically pay taxes on the benefit.  I’ll explain more below.

• Day Care Reimbursement or Flex Spend Account (Before tax) – If you have to pay for child care or after school care, you can open a Day Care Reimbursement Account and reimburse yourself for those expenses.  There is a maximum amount you can put into these accounts and they are a use it or lose it account – so do your homework first.  Use it or lose it means that if you don’t use all the money by the end of the year, you will lose it.  This year, I will have $3700 in child care expenses.  My daughter was in daycare in the spring and that is 100% eligible.  She went to summer camp and that was 100% eligible.  We have her in a private school for Kindergarten.  The tuition is not eligible but the after school care costs are eligible.  If I were int eh 25% tax bracket, I would save $925 in federal income taxes.
• Transportation Flex Spend Accounts (Before Tax) – I used this type of account when I was a Financial Advisor and had to pay a monthly garage parking fee.  It works the same way as the Day Care Reimbursement Account above.  You put money in for transportation expenses, you request reimbursements based on eligible receipts, and your lose any money left over.
• Health Care or Medical Flex Spend Account (Before Tax) – The most common Flex Spend account is the Health Care Flex Spend Account, also known as a Medical FSA.  These accounts allow for pretax contributions, use reimbursements (and sometimes debit cards) for eligible receipts and you lose the money if you don’t use it.
• Health Savings Account (Before Tax) – I like to think of a Health Savings Account or HSA as a Health Care IRA.  It is similar to the Medical FSV in the sense that you put your money in before taxes and can only spend it on eligible items.  The differences are 1) that you need to have a High Deductible Health Care plan (this means you have to pay a large amount of your medical costs before insurance will start paying – usually about $2,000 or more).  The second difference is that you don’t lose your money at the end of the year.  You can roll it over.  That is something to get excited about.
• Health Care or Health Insurance (Before Tax) – With Obamacare, you must now have health insurance.  In most cases, your employer is the best source to buy your insurance, but not always.  It is always worth your time to check with an independent health insurance agent to see what your rates would be if you purchased insurance on your own.  This can be the case if you are young and have no pre-existing conditions.  Even though the money is pretax, you will not pay taxes on the health care benefits you receive.
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