(For Full-Time Benefits-Eligible Faculty and Staff)
Carnegie Mellon provides both Health Care Flexible Spending Accounts (HCFSA) and Dependent Care Reimbursement Accounts (DCRA) to help you lower your health and dependent care expenses by paying with tax-free money. You may enroll in either the HCFSA or DCRA, enroll in both accounts, or opt out of the accounts. Our spending accounts are administered by Benefit Coordinators Corporation (BCC).
How Spending Accounts Work
- Determine your expected out-of-pocket expenses that you will incur in health or dependent care costs.
- Carefully estimate the amount you will set aside into each kind of account each month. Try to contribute enough to cover most of your expected expenses (since it saves you money), but not more than you will use—what you do not use, you will lose, as per IRS regulations.
- Each month, the amount you selected will be deducted from your pay before taxes are assessed.
- Throughout the year, you will incur eligible expenses. You may pay for them out of pocket, or pay for health care expenses with an HCFSA Debit Card.
- For expenses that you pay out of pocket, file claims to reimburse yourself with your tax-free money.
Tax Implications of Participating
You can save 25% or more on the money you spend on eligible expenses by contributing to the spending accounts on a pre-tax basis. However, you should be aware of the other financial implications of using these accounts.
- State income taxes: Pennsylvania does not recognize pre-tax benefit contributions for the Dependent Care Reimbursement Account. Therefore, the money you contribute to a DCRA will be subject to state taxes. HCFSA contributions are exempt from state taxes, as well as federal taxes.
- Impact on Social Security: When you reduce your taxable income for Social Security purposes, you may also reduce by a small amount what you may claim in Social Security benefits at retirement.
- Earned Income Tax Credit: Paying for benefits on a pre-tax basis may put employees who are eligible for the Earned Income Tax Credit at a disadvantage when they file for federal income tax credits.