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Prepare for open enrollment with tips on making your benefits tax-smart to maximize savings and reduce your taxable income.
As the calendar flips toward the last quarter of the year, many employers and employees prepare for open enrollment season—the essential period to review and select workplace benefits for the coming year. While this time is often associated primarily with choosing health insurance plans, flexible spending accounts, and other perks, there’s a growing need to approach your selections with a tax-smart mindset.
Open enrollment is not just about picking the cheapest option or the most popular plan. It’s about strategically aligning your benefits to maximize tax advantages, reduce your taxable income, and improve your overall financial wellness. This guide will walk you through how to make tax-efficient benefits choices during open enrollment, explain the most important tax-advantaged benefits, and help you avoid common mistakes.
Open enrollment is typically a once-a-year event where you can make or change your benefit elections without a qualifying life event. This includes selecting health insurance plans, enrolling in Flexible Spending Accounts (FSAs) or Health Savings Accounts (HSAs), choosing dependent care accounts, and adjusting retirement contributions.
Why is this important from a tax perspective?
Neglecting to optimize your benefits can lead to missed savings or unexpected tax bills later on.
Let's explore each one in detail with the latest 2025 limits and updates.
If your employer offers a High Deductible Health Plan (HDHP), you probably qualify for an HSA, one of the most powerful tax-advantaged accounts available.
HSAs offer a unique triple tax benefit:
Contributing the maximum allowed to an HSA can significantly reduce your taxable income while helping cover out-of-pocket health costs.
The IRS updated the 2025 HSA contribution limits as follows:
Funds in an HSA roll over year to year indefinitely. Many savers treat their HSAs as a supplemental retirement account to pay for healthcare costs tax-free in retirement.
Flexible Spending Accounts (FSAs) allow employees to set aside pre-tax dollars for qualified healthcare expenses.
For employees with dependent care expenses, the DCFSA allows pre-tax contributions to pay for eligible childcare or eldercare services.
Open enrollment is a great time to review and adjust your retirement plan contributions.
Contributions to traditional 401(k)s are deducted from your paycheck before federal income taxes are calculated, lowering your taxable income.
Consider your current and expected future tax brackets to decide which is best for you.
Employers may offer commuter benefits that let you set aside pre-tax money for public transit, parking, or vanpooling.
Using these benefits reduces your taxable income and can make commuting more affordable.
Employer-paid life and disability insurance premiums have specific tax rules:
Review your coverage during open enrollment and understand the tax implications of supplemental elections.
Examine your medical, dependent care, and commuting expenses to estimate what you’ll need.
Look at premiums, deductibles, out-of-pocket limits, and HSA eligibility.
Fully fund your HSA if eligible. Fund FSAs and DCFSA carefully based on expected expenses.
Increase your 401(k) contributions if possible to maximize tax savings and build your retirement fund.
Even modest monthly contributions can add up to meaningful tax savings.
Ensure your coverage matches your current needs and understand the tax effects.
If unsure about your benefit choices or tax impact, seek advice from a tax or financial professional.
Selecting tax-smart benefits is one piece of your larger financial strategy. Coordinating employer benefits with personal savings, investments, and tax planning can amplify your financial security.
Open enrollment is your annual opportunity to take control of your benefits and tax situation. By reviewing options carefully and prioritizing tax-advantaged accounts, you can reduce your tax burden, improve healthcare spending efficiency, and build long-term savings.
Start early, read all plan details, ask questions, and make the best decisions for your financial wellness.
An HSA (Health Savings Account) is available only if you have a High Deductible Health Plan (HDHP) and offers a triple tax advantage: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Funds roll over year to year indefinitely. An FSA (Flexible Spending Account) can be used with most health plans, allows pre-tax contributions for healthcare expenses, but typically has a “use it or lose it” rule, meaning unused funds may be forfeited at the end of the plan year.
Generally, you cannot contribute to both a general-purpose healthcare FSA and an HSA in the same year. However, you can contribute to a limited-purpose FSA (for vision and dental expenses only) while contributing to an HSA.
For 2025, the HSA contribution limits are $4,150 for individuals and $8,300 for families, with an additional $1,000 catch-up contribution if you’re age 55 or older. The healthcare FSA limit is $3,050 for 2025.
Commuter benefits allow you to set aside pre-tax dollars for eligible commuting costs like public transit and parking, up to $300 per month for each. This reduces your taxable income, meaning you pay less in federal income and payroll taxes.
Most FSAs have a "use it or lose it" rule, so unused funds are forfeited at the end of the plan year. Some employers may offer a short grace period or allow you to carry over a small amount (up to $610 in 2025), so check your plan’s rules carefully.
Being audited is comparable to being struck by lightning. You don't want to practice pole vaulting in a thunderstorm just because it's unlikely. Making sure your books are accurate and your taxes are filed on time is one of the best ways to keep your head down during tax season. Check out Vincere's take on tax season!
This post is just for informational purposes and is not meant to be legal, business, or tax advice. Regarding the matters discussed in this post, each individual should consult his or her own attorney, business advisor, or tax advisor. Vincere accepts no responsibility for actions taken in reliance on the information contained in this document.
For business tax planning articles, our tax resources provides valuable insights into how you can reduce your tax liability now, and in the future.
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