
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: SUNDAY, November 19, 1995                   TAG: 9511170101
SECTION: BUSINESS                    PAGE: G-2   EDITION: METRO 
SOURCE: DIANE STAFFORD KANSAS CITY STAR
DATELINE:                                 LENGTH: Medium

OVERESTIMATING PRETAXED DEDUCTIONS CAN PROVE COSTLY

It's not an employee benefit if it doesn't benefit employees. That's axiomatic in corporate benefits offices.

But some workers might be making a decidedly unbeneficial discovery right about now. About one in four eligible workers participates in a pretax payroll deduction program for health-care or dependent-care expenses or both.

Both deduction plans are appearing with greater frequency as cafeteria benefit-plan options. Both require employees to estimate in advance what their medical or day-care expenses will be in the coming year. Both then deduct the estimated amounts from participating employees' paychecks throughout the year.

The advantage is that those expenses are paid with pretax dollars, thus reducing the participant's overall taxable income.

The disadvantage is that you have to be a darn good estimator.

Let's say that, based on last year's experience, you figured you'd spend $4,500 in day care this year. You ordered deductions to that amount. Now it's nearly Thanksgiving and you've spent only $3,500. The only expenses you can claim are those for child-care bills incurred within the year, and there's no way you'll spend the full $1,000 difference by New Year's.

Condolences. You have the ``use it or lose it'' unbenefit.

``It's a point of great frustration,'' acknowledges Leah Marquard, tax law specialist for the Internal Revenue Service. ``Estimates are wrong. Circumstances change. And when people find out it's costing them money, they are unhappy. You have to be aware of the pitfalls.''

Short of giving your day-care provider a whopping bonus, there's not much you can do if you overestimated child-care expenses - except kiss those unspent dollars good-bye.

But there's brighter news if you think you've overestimated your medical expenses for this year. There's time - and options - left.

Nancy Redpath, senior benefits administrator at Fringe Benefits Design Inc., suggests some ways to make your medical expenses equal your deductions: Get a physical. Make a dental appointment or have some needed dental work done. Get prescription sunglasses. Fill, if you can, long-term prescriptions before the end of the year. Pay orthodontics bills in advance.

You get the idea. There are seven weeks left to get discretionary medical and dental care. Some benefit plans offer a grace period after the end of the year to submit proof of expenses, but remember that the expenses must be incurred before the end of the year.

You must, of course, be sure you understand your benefits plan and know exactly what expenses are allowable. Your company benefits office should be able to help, but don't count on it. This is a complex benefit. You may need to call your plan's administrator; many have toll-free numbers for questions.

If you've goofed this year, take extra care with next year's estimates. It's better to underestimate than overestimate. In a perfect world, of course, you'll come out even.

by CNB