Overlooked Tax Change Boosts 401(k) Flexibility
Business Insurance (10/07/02) Vol. 36, No. 40 p.1; Geisel, Jerry

Lower income employees stand to benefit from a tax code change that could result in hundreds of dollars in tax savings by way of 401(k) salary deferrals and pretax contributions to other benefit programs. The tax break is significant enough that it might be more tax beneficial for some lower income employees to make pretax contributions to dependent care flexible spending accounts and claim the federal dependent care on their taxes instead of giving after-tax contributions to providers. Experts say few workers are aware of the credit, but that may be because the tax code amendment is hidden away in a paragraph of the Economic Growth and Tax Relief Reconciliation Act. Depending on whether the employee owes back taxes, the earned income credit is refundable.

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