Are a great benefit for the employee! You pay NO FUTA, FICA or other payroll taxes on the redirected funds of your account. The savings can be tremendous! Remember, if you are paying too much in taxes – this will help you save.
IRS Section 125 allows participants to convert a taxable benefit (salary) into nontaxable benefits. Utilizing a Section 125 plan, you may elect to pay for eligible unreimbursed Health Care expenses (such as deductibles and co-payments) and/or Dependent Care expenses, including care for a child, elderly parent or disabled spouse on a tax-free basis.
THE RESULT: You pay lower payroll taxes and consequently have more spendable income.
For most employees, FSAs are the only way to gain a tax break for medical expenses. With medical expenses deductible on income tax returns only to the extent they exceed 7.5 percent of adjusted gross income, relatively few people are ever able to qualify for the itemized medical deduction.
Most working parents with child-care expenses find the dependent-care FSA provides a bigger tax benefit than by claiming the child-care tax credit, by up to $1,500.00!
Switch expenses to “before tax” and SAVE.
| WITHOUT FSA | WITH FSA | |
| Monthly Salary | $3,000.00 | $3,000.00 |
| Pre-tax FSA contribution | $0.00 | $500.00 |
| Taxable Salary | $3,000.00 | $2,500.00 |
| Federal Income tax & FICA | $1249.50 | $1041.25 |
| Take-home pay | $1750.50 | $1458.75 |
| After-tax expenses | $500.00 | $0.00 |
| Net take-home pay | $1250.00 | $1458.75 |
| Increase in monthly spendable income | None | $208.75 |
| Increase in annual spendable income | None | $2505.00 |