Section 125 Flexible Spending
The Section 125 plan offers employees the opportunity of participating in a medical care spending account and dependent care spending account. Participation in either or both of these accounts offers tax-free reimbursement of health care and dependent expenses NOT reimbursed by insurance. By redirecting a portion of your pre-tax salary to these Section 125 accounts ou essentially “bank” your money in a tax-free account. The pre-tax dollars you elect to contribute to the plan are exempt from Federal, State, and FICA taxes which result in a saving to you of between 25% to 38% of your dollars you contribute to the accounts, depending on your individual tax bracket.
| EXAMPLE: | |
| Here is an example of how a Flexible Spending Accounts (FSAs) work for an employee earning $1,000.00 per month: | |
| Family health care expenses (dollars paid out of pocket for deductible, dental work, eye glasses, etc.) |
$100.00 per month |
| Dependent care expenses (dollars paid out of pocket for day care, summer day camp, etc) |
$300.00 per month |
| TOTAL CONTRIBUTIONS TO FLEX ACCOUNT: | $400.00 per month |
| WITHOUT FLEX ACCOUNT |
WITH FLEX ACCOUNT |
|
| Gross Monthly Salary | $1,000.00 | $1,000.00 |
| Deduction to Health Care Account | $0 | ($100.00) |
| Deduction to Dependent Care Account | $0 ________ |
($300.00) ________ |
| Adjusted Taxable Salary | $1,000.00 | $600,00 |
| Less Income Tax (20%) | ($200.00) | ($120.00) |
| Less Social Security Tax (7.65%) | ($77.00) ________ |
($46.00) ________ |
| Salary After Taxes | $723.00 | $434.00 |
| Less After-Tax Expense-Medical | ($100.00) | $0 |
| Less After-Tax Expense-Dependent Care | ($300.00) ________ |
$0 ________ |
| Monthly Spendable Income | $323.00 | $434.00 |
| Net Amount Saved | $111.00 | |
| Annual Net Amount Saved | $1,332.00 |