U.S. Senate bill would limit flexible spending accounts

A healthcare reform bill now being debated in the U.S. Senate Committee on Finance would limit contributions to health flexible spending accounts, a type of tax deferred savings account that can be used for dental and other healthcare expenses.

Current law allows employers to set up these accounts for employees. Employees then contribute as much as they want to them in pretax dollars from their paychecks, though employers may set some limit. Employees can then use the money for healthcare expenses, including dentistry, but they must spend the entire amount in the account by the end of the year.

A comprehensive healthcare reform bill introduced in the finance committee would set a maximum annual limit of $2,500 to the amount that employees can contribute per year.

One reason for wanting to limit the accounts is that they may result in unnecessary spending when employees rush to spend the money before the end of the year, according to an analysis in the New York Times.

Defenders of the accounts are arguing against this provision of the Senate bill because the new limitation would have the effect of increasing taxation.

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