FSAs Save You Money!
A Health Care Flexible Spending Account can save money by giving you a tax break. You contribute money to the FSA from each paycheck on a before-tax basis. This money can be used to pay for any of a list of eligible expenses. By contributing before taxes, your taxable income is reduced.
Estimate Your Savings:
Multiply your FSA contribution [check your limits] by your federal income tax rate:
| Federal Income Tax Savings | $______ |
Multiply your FSA Contribution by 7.65%
|
|
+ $______ |
| Total Estimated Federal Tax Savings | = $______ |
The Internal Revenue Service rules for FSAs make them use-it or lose-it propositions but you may still save money, even if you leave some funds in the account at the end of the year. New rules from the new healthcare act have provided for grace periods beyond the original 12 month limits. And if you still have money in your account, you can always use it to purchase over-the-counter items like bandages before the deadline.
Saving As Easy as 1-2-3!
1 – Make contributions for each paycheck
2- When you incur eligible expenses, file a claim form (or wait and file them all at once
3- Once your claim has been processed, you’ll receive a check for the full amount of your eligible out of pocket costs.
About the Tax Savings
The calculations above make some assumptions. First, it assumes that if you didn’t put your money into the FSA, it would be normal taxable income and treated as such for withholding. Additionally, it assumes that the 7.65% FICA tax would also apply. You should note that your FICA tax savings might be lower if your pay is above the current Social Security wage base (2O11 dollars of $106800). If your pay is above the Social Security wage base, your FICA tax savings may be lower. This is only an estimate. Your actual savings may vary. In addition to saving on federal taxes, your state taxes may also be reduced.
A final consideration is whether you are eligible for the Earned Income Tax Credit. You may want to consult your tax advisor.
NOTE: A Healthcare Flexible Spending Account IS NOT THE SAME as a Health Savings Account.
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