You see a lot of acronyms every day, and most people don’t know what any of them stand for. FSA may seem like just another one. But this time you’re wrong. FSA … those three little letters mean a lot. A lot of potential money savings anyway.
So what is an FSA? It stands for “Flexible Spending Account,” and here’s why…
It’s Flexible.
Reimburse yourself for hundreds of things you routinely buy. Submit claims weekly, monthly, once a year, or whenever you feel like it. Take those big medical expenses (that always seem to come at once) and distribute the pain over the year. Contribute a little or a lot. It’s flexible. And it’s up to you.
You save on everyday Spending.
Every day you go to the doctor, fill prescriptions, buy pain relievers and contact lens solution. And you pay for your child’s day care every month like clockwork. All of these things are everyday expenses that can cost you less — more than 20% less! — just by participating in our FSA program.
It works like a savings Account.
Each month, you automatically contribute money to your account. Then, when you have an expense and need access to that money, you file a claim and make a withdrawal. Sometimes you don’t even need to file a claim. The withdrawal comes to you automatically. Don’t you wish your savings account worked like that?
There are two types of FSAs:
- Health Care FSAs — You contribute money to your Health Care FSA. The IRS doesn’t consider your contributions “income,” so you don’t pay income taxes, Social Security, or Medicare taxes on your contributions. Then you use this untaxed money to reimburse yourself when you have a health care expense. Need glasses? Get them tax-free. Go to the doctor? Yep, tax-free. Your daughter has a cough? Her medicine is now tax-free, too. If you are enrolled in the Gold HSA plan, your FSA dollars are limited to dental and vision purchases only. You will use your HSA dollars, which are also tax-free, for your medical and pharmaceutical expenses.
- Dependent Care FSAs — You contribute money to your Dependent Care FSA. This money is not subject to federal income, Social Security, or Medicare tax either, so your tax withholding is even lower. You use this tax-free money to reimburse yourself for dependent care expenses like day care, after-school programs, summer day camps, and adult day care.
How much can you save?
Well, that depends a lot on how much you make and how much you contribute to your accounts. But take a look at the following chart to see how much you could save at different contribution levels.
| If You Contribute to Just One FSA (Health Care OR Dependent Care)
|
| Your Income Tax Bracket | Tax Savings Contributing $500 Annually | Tax Savings Contributing $1,000 Annually | Tax Savings Contributing $1,500 Annually | Tax Savings Contributing $2,00 Annually | Tax Savings Contributing $4,000 Annually |
| 15% | $113.25 | $226.50 | $339.75 | $453.00 | $906.00 |
| 25% | $163.25 | $326.50 | $489.75 | $653.00 | $1,306 |
| 28% | $178.25 | $356.50 | $534.75 | $713.00 | $1,426 |
| 33% | $203.25 | $406.50 | $609.75 | $813.00 | $1,626 |
| 35% | $213.25 | $426.50 | $639.75 | $853.00 | $1,706 |
| Note: Tax savings includes an additional 7.65% savings because contributions are also exempt from Social Security and Medicare taxes. |
Most states don’t tax Health Care or Dependent Care FSA contributions. Your tax savings could be even higher if they are also exempt from state income taxes.
OK, so what can you buy with that kind of extra money?
Ready to Enroll? For 2010, the health care account limit is a maximum of $10,000 and the dependent care account limit is $5,000. Each account is independent. Funds contributed to either account must be used by 12/31/2010. All employees are required to participate in the annual employee benefits enrollment.
