The Tax Savings of Flexible Spending Accounts
When you contribute to your Flexible Spending Account (FSA), you are saving the taxes you pay and putting more money into your pocket.
Funds that are in your FSA are not counted as part of your earnings. So when you pay your income tax … you’re paying less than you would have if all your money was considered income.
Here’s an example of FSA tax savings at work:
Say your taxable income is $30,000. But, you don’t enroll in a FSA. So, the amount of income you are taxed on is $30,000.
For this example, let’s say the tax rate is 30% or $9,000.And, of course, throughout the year, there have been a few medical or dependent day care expenses. Let’s say this time, it’s $2,000.That leaves you with $19,000 in your pocket.
However, if you choose to contribute to an FSA, that money comes out before it’s taxed, which means your income that is taxed is reduced, and you are left with more money to spend on eligible expenses.
So, using the same $30,000 taxable income, if you deposit $2,000 into your FSA for medical expenses, that amount is deducted from your income before it is taxed. So, the amount of income you are taxed on is actually only $28,000. The 30% income tax you now pay is now only $8,400, instead of $9,000 like in the original scenario.
…..which puts $600 more in your pocket than before!
As you can see, FSAs are the smarter way to pay for health care.
Join the millions of Americans who already enjoy the tax savings offered by a Flexible Spending Account!