A Flexible Spending Account (FSA) is considered one of the most underutilized tools to help both the employer and employee save on taxes each year. Because many don’t understand it, they don’t think they are worth the “hassle.” So, is it worth incorporating into the employer-sponsored benefits plan?
The BASE® Flexible Spending Account (FSA) is an IRS-approved tax savings plan that provides employees with the option to pay for out-of-pocket health care expenses not covered by insurance on a tax-free basis. The BASE® FSA is another means for an employee to pay for their out-of-pocket health care expenses and a way for an employer to maximize their tax savings.
Not only is it a no-hassle plan, but it saves both the employer and employee valuable tax dollars. The following example shows just how valuable and why it would be worth it to invest in this benefit plan.
Daniel owns a Construction Company with 22 employees, with a group health plan in place. He calls BASE® and sponsors a Flexible Spending Account. Let’s take a look at one of his employees, Laura, and how much she could save by enrolling in the business’ FSA. For both examples, Laura is paid a yearly income of $40,000.
WITHOUT the FSA, all her income will be taxed at 27.65% which is $11,060 in taxes taken out of her paycheck. On top of that, Laura has $2,000 in unexpected health care expenses incurred throughout the year. At the end of the year, Laura is left with $26,940 in her pocket.
WITH the FSA, Laura chooses to elect to put $2,000 into her FSA on a pre-tax basis to pay for those unexpected health care expenses incurred throughout the year. Her taxable income is now $38,000, taxed at 27.65%, which is $10,507 in taxes taken out of her paycheck. At the end of the year, Laura is left with $29,493 in her pocket.
Laura’s income is $26,940 WITHOUT the FSA and $29,493 WITH the FSA. Without doing anything but electing to put her money that she would already use to pay for her health care expenses into her FSA on a pre-tax basis, Laura will save $2,753. For Daniel, if half of his employees elected to do what Laura did, Daniel could save $1,683 a year, just by having 11 employees simply elect to put their money into an FSA.
By electing to enroll into the BASE® FSA, employees can realize more benefits than just saving hundreds, if not thousands, in valuable tax dollars each year. With the funds being transferred on a pre-tax basis, employees save on federal, state, Social Security, and Medicare taxes, increasing their take-home pay. Employees can choose to utilize the online portal, mobile app to easily report their medical expenses, or use our FSA debit card to pay for their qualifying expenses directly to simplify the payment/reimbursement process.
By electing to sponsor the BASE® FSA, employers can realize more benefits than just saving hundreds, if not thousands, in valuable tax dollars each year. Employers can enhance their benefits package by providing their employees a means to pay for their health care costs, and even though the employees are electing to contribute their funds on a pre-tax basis, this helps to reduce the employer’s share of the FICA and FUTA taxes. Employers have options for increased plan participation and savings by offering a variety of reimbursement methods, including the mobile app or debit card.
The BASE® FSA is worth more than the tax savings and what the employee takes home in the paycheck. For more information, call BASE® at 888.386.9680 or visit www.BASEonline.com.