Flexible Spending Accounts
Employer sponsored flexible spending accounts (FSAs) are benefit plan arrangements that allow employees to pay for certain health care or dependent care expenses on a pre-tax basis. A Health Care FSA is an alternate way of paying your share of your health care costs. In the same manner, a Dependent/Child Care FSA reimburses you for expenses for dependents and childcare which are necessary to allow you and your spouse to work.
When you create an FSA, you choose to have a specific amount of your annual salary withheld from your paycheck and deposited to your FSA. These withholdings are on a pre-tax basis. FSA’s are benefit options designed to increase your disposable income by reducing the amount of taxes you pay. An FSA enables you to use pretax dollars to pay for qualified health care expenses which are not reimbursed under any health care plan or insurance plan,while a Dependent Care FSA pays for your qualified dependent/child care expenses. The IRS establishes the guidelines and they can change annually.
Flexible spending accounts offer significant tax advantages. Employees do not pay federal income, state income, or FICA taxes on the salary they contribute to a FSA plan. Employers, in turn, do not pay matching FICA (7.65%) and FUTA taxes because employees’ gross incomes are significantly reduced. This makes FSAs a valuable tool to save tax dollars which helps considering the rising health care costs.For more information about Flexible Spending Accounts or to discuss your specific business needs, please contact us.