YOUR CHEAT SHEET. Rev. 10/29/2007 ... came out of your pay check, where
are the savings? ... the account limit even if the current balance is not enough to.
YOUR CHEAT SHEET Understanding the tax savings behind an FSA can seem complicated. If you’re being reimbursed with money that already came out of your pay check, where are the savings? FSA deductions are exempt from both FICA and federal income taxes. We’ve put together an example that will highlight the tax savings of participating in an FSA.
Employee B also earns $35,000/year after exemptions and standard deduction and pays $2,400/year for her family’s medical expenses. (Same conditions as noted above.) Employee B participates in a Health Care FSA, while Employee A does not. How much money does Employee B really save?
35,000 Gross Pay* -7,125 Taxes 27,875 -2,400 Medical Costs 25,475 Net Pay $2,122.92 Monthly Pay
The federal income tax rates can change on a yearly basis. In addition to federal income tax, you may also have a state income tax. FSA deductions are exempt from FICA, federal income tax and state income tax, except New Jersey and state local taxes in most cases.
2008 Tax Rates*
Employee A earns $35,000/year after exemptions and standard deduction and pays $2,400/year for her family’s medical expenses. They have one child.
Employee B 35,000 Gross Pay* -2,400 Medical Costs 32,600 -6,581.40 Taxes 26,018.6 Net Pay $2,168.22 Monthly Pay
(These rates are after any personal exemptions and standard deductions)
FICA (Social Security + Medicare) 7.65% on first $97,500 1.45% on excess over $97,500 Single 10% on first $8,025 15% on next $24,525 25% on next $46,300 28% on next $85,700 33% on next $193,150 35% on excess over $357,700 Married 10% on first $16,050 15% on next $49,050 25% on next $66,350 28% on next $68,850 33% on next $157,400 35% on excess over $357,700 * These rates are provided only as a guide. In the example, gross pay has been reduced by personal exemptions and the standard tax deductions. You should always consult a tax advisor if you have any questions on tax rates or general tax advice.
Employee B will save $45.30/month using an FSA — that’s a savings of over $543.56/year.
IS THIS MAGIC? Since the $2,400 deduction was taken pre-tax, employee B did not pay any FICA or Federal Income Tax on this amount.
Rev. 10/29/2007 12:00 pm
Curious about how much you would save? Please consult our Web site at www.flex-plan.com and use our tax savings calculator.
TAKE THE QUIZ IS A HEALTH CARE FSA RIGHT FOR ME?
EDUCATE YOURSELF AND REAP THE REWARDS
Everybody spends money on healthcare expenses — the secret is figuring out how much you spend. We’ve put together a little guide to help you along. YES
Do you purchase over-the-counter medicines? Do any family members take a prescription drug? Do you meet the health plan deductible? Does anyone in your family wear contacts or glasses? Does anyone wear braces?
“My husband and I don’t have very many expenses, but we always seem to meet our deductible, so we signed up for $250. We spent our entire account in 5 months and still had claims we could have submitted.”
Do you plan on going to the dentist soon? If you checked “YES” on any of the questions, then you’re an ideal candidate for a Health Care FSA. Sign up for the FSA and save on these expenses and many more!
WHAT DO I DO NOW? 3
Call your health plan provider and find out if the deductible was met last year.
Call your pharmacy. Pharmacies can provide you with a list of prescriptions filled and costs for the past year.
Make an itemized list of projected expenses and sign up for a little less than this amount.
“I waited 2 years to sign up for my account and never realized how easy it was. My son just had braces put on last year — I could have saved hundreds had I enrolled earlier.”
WHY USE AN FSA? 1. This is the only benefit that will actually save you money on your expenses. 2. The Health Care FSA is pre-funded. You have full access to your annual limit, at any time, so you can be reimbursed up to the account limit even if the current balance is not enough to cover the claim. 3. It’s easy. You pay for your expenses as usual, and hold on to the doctor’s bill. Just fax or mail us the documentation with a claim form.
FACT Less than 20% of employees will sign up for an FSA, but substantially more will meet the medical plan deductible. This makes FSAs one of the most under-utilized benefits available.
Rev. 6/22/2007 7:52:00 AM
“I finally signed up for an FSA to pay for my glasses. I was shocked at how simple it was. I bought my glasses and sent the receipt to Flex-Plan Services. A check was in my mailbox for the cost of my glasses a few days later.”