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Bush may doctor pretax accounts
By HELEN HUNTLEY, Times Staff Writer
© St. Petersburg Times President Bush wants to make medical reimbursement accounts an even better deal for workers who use them to save on taxes. If their employers offer them, workers can contribute to the pretax accounts through payroll deduction, then get reimbursed by submitting proof of medical expenses that are not covered by insurance. The chief drawback is that workers have to estimate their medical expenses before the year begins -- and they lose any money left in the accounts at year's end. Bush proposes that workers be allowed to carry over as much as $500 to the next year, roll the money into a retirement plan or withdraw it and pay taxes on it. A bill along those lines was introduced in the House of Representatives this month and has attracted nearly 50 sponsors. However, it is competing for attention with other tax cut proposals at the same time Congress is trying to figure out how to pay for the war in Iraq. Although the use-it-or-lose-it provision is unpopular, it doesn't cost individual workers much money. Only about 20 percent of workers have money left in their accounts at year's end, usually less than $100, said Bonnie Whyte of the Employers Council on Flexible Compensation in Washington. The forfeited money typically goes to cover plan expenses, although it can be distributed among plan participants. However, the presence of the use-it-or-lose-it provision has a big influence on participation. "People are very conservative and put a limited amount of money in because they are afraid of losing it, or they are just uncomfortable with the whole idea," Whyte said. "Only about 25 percent of the people who could have an account actually have one." The rule also sets off a year-end spending frenzy on glasses, contact lenses and dental procedures by people trying to empty their accounts. Most employer plans allow workers to set aside $2,000 to $4,000 a year, although the typical participant contributes between $400 and $800, according to the council. The group also estimates that 4.5-million to 6.8-million workers have accounts. An increase in participation or in the amount contributed would reduce the tax dollars flowing to the Treasury, but it would be much less costly than some of Bush's other proposals, such as eliminating the tax on most corporate dividends. -- Helen Huntley can be reached at huntley@sptimes.com
or (727) 893-8230.
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From the Times Business report
From the AP
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