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On money

Flex spending policy could cause company IRS troubles

By HELEN HUNTLEY

© St. Petersburg Times, published February 18, 2001


Q. I want to sign up for my company's flexible spending account, which would allow me to pay medical expenses with pretax dollars. I understand that you forfeit any money left in the account at the end of the year. I am concerned because my employer is requiring participants to sign an agreement to reimburse the plan if they leave the company after being reimbursed for medical expenses in excess of the year-to-date withholdings. Is this legal? It was my understanding at previous employers that the company absorbed these losses.

A. Don't miss out on the opportunity for big savings on your income and Social Security taxes. The way these plans work, you decide how much you want to put into your account through payroll deduction. Then you submit your medical and dental receipts for reimbursement from your account. If you signed up for a $20 weekly deduction, you immediately could be reimbursed the full $1,040 (assuming a 52-week year). As your employer has figured out, reimbursing employees in advance puts the company at risk.

But your employer's suggested solution could result in heavy IRS penalties, employee benefits consultant Greg Matthews said. For payments into the account to qualify as exempt from federal employment taxes, there must be a risk of loss, he said.

An IRS audit "could result in a determination that the employer's tax deposits and withholding are delinquent for all salary deferrals of all participants," he said. While that would be bad news for you, it would be worse for your employer.

Matthews, who heads the Matthews Benefit Group in St. Petersburg, said a company that tried to implement a repayment requirement probably would have difficulty collecting from former employees. He said taking the money out of the employee's last paycheck could violate federal and state labor laws.

"I have never met an employer who, after consulting with a labor law attorney on this issue, went forward with their idea of circumventing the tax code," he said.

Incidentally, Matthews said company losses and employee forfeitures usually are fairly equal.

* * *

Q. I've been hearing about investing in "Cubes." What is that?

A. That would be QQQ, the symbol for a stock that tracks the Nasdaq 100 Index. This stock is part of a fast-growing group of investments known as "exchange-traded funds," which are similar to index mutual funds but trade like stocks. There were 80 of these funds at the end of last year, according to the Investment Company Institute. One place to read more about them is the Nasdaq Web site (http://www.nasdaq.com).

* * *

Q. I have lived in Florida seven years and recently received for the first time forms for an intangibles tax. What is this and who is obligated to fill out and return this form?

A. This is a state tax on the Jan. 1 value of your intangible assets such as stocks, bonds and mutual funds. You must file if you are a Florida resident who owes at least $60. The first $20,000 of assets are exempt ($40,000 for a couple) and the rest are taxed at $1 per $1,000. But many types of assets are not taxed, including bank deposits, insurance investments, retirement accounts and U.S. government and Florida municipal bonds. The deadline for payment is June 30 with discounts for early filing.

For more information, call the Florida Department of Revenue at (800) 352-3671.

Reader response

Thank you for the articles you have written about paying down a mortgage with extra money. Six years ago I took out a mortgage at a variable rate. Each month I would add $10, $15 or $25 extra. Now I have received a notice from the lender that I am paid in full. My St. Petersburg Times is free thanks to your advice. With the extra money I am buying stock.

Online money map

Quicken.com (http://www.quicken.com) has improved its "One-Click Scorecard" for evaluating stocks. Enter a stock symbol under "get quotes and research," then click on "One-Click Scorecard." You can see how the stock rates under four different investment strategies.

- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to huntley@sptimes.com by e-mail.

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