Flexible spending accounts to debut next year

Federal employees will be able to cut their tax bills next year by putting money aside for medical services and child care in special tax-free accounts, the Office of Personnel Management announced Tuesday.

Employees will be allowed to put up to $3,000 in the flexible spending accounts for medical expenses, such as co-payments and deductibles, dental care and vision care (including laser eye surgery). They will be able to put up to $5,000 in the accounts for child care and elder care.

This month, OPM will start seeking out a contractor to run the accounts. Officials expect to run an open season beginning in May, during which employees will be able to sign up for accounts. The accounts would become active in July.

Under the flexible spending account program, employees would set aside money from each paycheck to go into the accounts. The money would be deducted before taxes are taken out, much the way Thrift Savings Plan contributions and health insurance premiums are deducted. The pre-tax deductions reduce employees' tax bills.

Employees could then withdraw money from the accounts to pay for expenses covered by the program. Any money not used by the end of the calendar year would be forfeited.

OPM is creating the new benefit in part to keep up with private sector companies. Nearly 70 percent of such firms offer flexible spending accounts to their employees, according to the Society for Human Resource Management's 2002 benefits survey.

Rep. Steny Hoyer, D-Md., applauded OPM for creating the accounts. Hoyer helped include language in the House-passed 2003 Treasury Postal appropriations bill encouraging OPM to offer the accounts to employees. National Treasury Employees Union President Colleen Kelley has also pushed for the accounts.