Reasons to enroll in a flexible spending account
Using a flexible spending account (FSA), you can pay for your health care and day care expenses and save money at the same time!
By enrolling in the FSA program, you set aside pre-tax dollars to pay for health care expenses that are not covered by your other benefit plans. And, you can get the same pre-tax savings by opening an FSA to pay for childcare expenses.
That means more money for you and your family!
Here's how it works
Let's say you have an annual base salary of $34,000, and you are in the 32 percent income tax bracket. You estimate that you will have $2,400 in out-of-pocket health care expenses next year, so you decide to enroll in the health care FSA and contribute $2,400. In this example, you're paid on a monthly basis, so your monthly contribution to the FSA will be $200 per month. That's the $2,400 divided over 12 monthly paychecks. Let's see how this saves you money.
|Calculation||Without a |
Health Care FSA
Health Care FSA
|Annual Base Salary||$34,000||$34,000|
|- Annual Health Care FSA Contribution||-0-||$ 2,400|
|= Gross Income||$34,000||$31,600|
|- Taxes (at 32%)||$10,880||$10,112|
|= Net Take-Home Pay||$23,120||$21,488|
|- After-Tax Health Care Expenses||$ 2,400||-0-|
|Net Spendable Income||$20,720||$21,488|
|Tax Savings||-0-||$ 768|
Why Should I enroll in a FSA?
Without the FSA, you would pay for those health care expenses with after-tax dollars, and you would have $20,720 remaining after paying such costs. With the FSA, you would have the $2,400 withheld from your pay pre-tax, and you would have $21,488 remaining. In this example, your spendable income has increased by $768 by paying health care expenses with before-tax contributions. The money that you set aside in the FSA is available to you when you have out-of-pocket health care expenses during the year. When you are reimbursed for those expenses, you are paid with tax-free dollars.
You can put up to $2,500 per year in your health care FSA and up to $5,000 in a dependent care FSA, but plan carefully. If you don't use all the money you set aside in your FSA, the law says you lose it. You can use money in your FSA to reimburse expenses incurred throughout the calendar year.
Signing up to participate in an FSA is easy; simply fill in the amount you want to contribute to your health care and/or dependent care FSA on your benefits open enrollment form. The amount you indicate will be taken from your paycheck in equal installments over the course of the year. These deductions will be then be used to reimburse your eligible health care or day care expenses.