Looking ahead to Annual Enrollment: How do Flexible Spending Accounts Save You Money?

A Flexible Spending Account (FSA) is a tax-advantaged account that allows employees to set aside pre-tax dollars for eligible expenses.  Once a year, you elect an FSA based on the amount you expect to spend throughout the year.  The key point to remember is that if you don’t use the money, you will lose it; so, it's wise to be conservative to ensure you can spend the funds you've set aside. FSAs will only save you money if you use all the funds you have elected.

You may be asking yourself, if I am just setting aside money to be reimbursed for expenses, what is the purpose?  Let’s explore that now.   Remember, the money set aside is tax-free, which means it comes out of your paycheck before taxes are applied. 

To illustrate how you save money with an FSA, let’s say your child needs braces next year.  Anyone who has gone through braces knows it can be quite costly. Suppose after dental insurance pays, you still owe $1,700.00.  We divide this amount by 26 pay periods, which results in $65.38 being deducted from each paycheck.  If you're in the 22% tax bracket, this means you save approximately $14.38 per paycheck, totaling about $373.97 over the year. 

We can use another example for a Dependent Care Flexible Spending Account.  Let’s say you pay $6,000 a year on daycare expenses for your child, so we divide $6,000 by 26 pay periods and the result is $230.69 being deducted from each paycheck.  If you are in the 22% tax bracket, this means that you will save approximately $50.75 per paycheck, totaling about $1319.55 over the year. 

In addition to financial savings associated with taxes, Flexible Spending Accounts also help us budget and plan for upcoming medical expenses by allowing us to spread out the costs of the upcoming expense by setting aside a little bit of the cost each paycheck acting much like a Christmas savings club that many individuals partake in.

As you can see from these examples, the savings can be significant.  If you want to know more about Flexible Spending Accounts, visit the EverTrue Benefits Website by visiting www.evertruebenefits.org/fsa-healthcare or talk with your HR Representative.