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Understanding Flexible Spending Accounts: Benefits and Savings for Employees and Employers

Discover the advantages of Flexible Spending Accounts (FSAs) for health care, dependent care, and transit expenses. FSAs allow participants to pay for eligible expenses with pre-tax dollars, resulting in significant savings on federal, state, and local taxes. Employers also benefit from reduced FICA contributions while providing an attractive benefit for employees. Learn how FSAs work, what qualifies, and how they can enhance your financial wellness. Explore the potential tax savings and see why offering FSAs is a smart choice for businesses.

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Understanding Flexible Spending Accounts: Benefits and Savings for Employees and Employers

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  1. LOGICAL DEDUCTIONS, LLC 167 Cherry St. Suite 159 Milford, CT 06460 Keith Weindling 203-268-9295

  2. Flexible Spending :Health CareDependent CareTransit Benefits

  3. Medical Co-Pays Prescription Co-Pays Dental Co-Pays Eye Glasses Contact Lenses Chiropractor Dependent Care Day Care Expense Transit Expense (Train) Parking Expense Hearing Aid Counseling FLEXIBLE BENEFIT EXAMPLES

  4. What is a Flexible Spending Account? • A Flexible Spending Account is an easy way for • participants to pay for health care, dependent care, • and transit expenses that are not covered by another • benefits plan through payroll deductions on a pre-tax • basis. The program is governed by the IRS.

  5. Why Offer Flexible Spending Accounts? • Saves participants and clients money • FSA deposits are made on a pre-tax basis • EMPLOYERS save on matching FICA contributions and offer an excellent fringe benefit to all employees. • PARTICIPANTS save on Federal, State, and local income taxes, as well as FICA Taxes. • Encourages participants to make appropriate health care spending decisions

  6. FSA Tax Savings Example With FSAs Without FSAs Gross Salary $35,000 $35,000 Health, Dependent, and Transit Expenses Paid Through the FSAs $ 5,000 -0- Taxable Salary $30,000 $35,000 Taxes (30%) $ 9,000 $10,500 Health, Dependent, and Transit Expenses Not Paid Though the FSAs -0- $ 5,000 Take-home Pay $21,000$19,500 Employee Savings $1,500

  7. FSA Tax Savings Example With FSAs Without FSAs Gross Salary $35,000 $35,000 Health, Dependent Care, and Transit Expenses Paid Through the FSAs $ 5,000 -0- Taxable Salary $30,000 $35,000 Taxes (30%) $ 9,000 $10,500 Health and Dependent Care Expenses Not Paid Though the FSAs -0- $ 5,000 Take-home Pay $21,000$19,500 Employer Savings $382.50 per employee

  8. Health Care Reimbursable Expenses • Medical, dental and other expenses not covered by participant’s health plan • Deductibles and co-payments, if applicable for participant’s plan or participant’s spouse’s plan • Vision expenses (contact lenses, lasik surgery, eyeglasses, eye exams, etc.) • Hearing expenses (hearing exams, aids) Psychotherapy, counseling

  9. Dependent Care Reimbursable Expenses • Licensed nursery schools, day camps, day care centers • Services from individuals who provide care inside or outside participant’s home (care provider may not be participant’s dependent or a child age 13 or younger).

  10. Transit and Parking Expenses • Qualified transportation expenses generally include payments for the use of mass transportation (train, subway, bus fares are typical examples). • Parking expenses include the costs of parking a vehicle in a facility that is near the employee’s place of work or parking at a location from where the employee commutes to work. (for example, the cost of parking in a lot at the train station so that the employee can continue their commute on the train)

  11. FSA Contribution Amounts Health Care FSA • Plan Maximum is set by employer Dependent Care FSA • Plan Maximum is $5000 • Transit Expense Guidelines • Parking: Transit:

  12. IRS Limitations • Use it or lose it (national forfeiture rate is only 5%) • Uniform coverage • Limited opportunity to revoke or make new elections

  13. Family Status Changes • marriage or divorce • birth or adoption of a child • death of a dependent or spouse • loss of a dependent child’s eligibility • commencement or termination of your spouse’s employment • change in employment status (from full-time to part-time or vice versa) • unpaid leave of absence taken by you or your spouse

  14. FSA Plan Fees • One Time Plan Setup: $ 350.00 • Annual Renewal : $ N/C • Monthly : $ 35.00 Base $ 3.50 per participant • All checks sent directly to each employee. Reimbursements may be submitted monthly.

  15. Employer Savings Example:# of Employees: ____10____ Health Care Contribution : ___$6,000___Dependent Care Contribution : ___$10,000__Total Employee Contributions: ___$16,000__Annual Employer Savings (FICA 7.65% x total contributions): ___$1,224___Estimated Annual Fees: ____$840____TOTAL EMPLOYER SAVINGS: ___$384___Flexible Savings Plans are an excellent benefit to all employees !!In this example, each employee is also saving over $450 ($1600 in pre-tax contributions times FICA + FIT +SIT )

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