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The main benefit of an FSA is the tax savings it offers. An FSA enables you
to pay for out-of-pocket expenses with money you set aside before any taxes are
taken out. Without and FSA, you would still pay for these expenses, but you
would do so using money remaining in your paycheck after federal taxes are
withheld as shown in the following example.
| Annual Savings Example* |
With an FSA |
Without an FSA |
| If your
annual taxable income is: |
$28,000 |
$28,000 |
| And you deposit this annual amount into an FSA: |
$1,500 |
$0 |
| Your
taxable income is now: |
26,500 |
28,000 |
| Subtract federal and Social Security taxes: |
$9,447 |
$9,982 |
| If you spend after-tax dollars for
eligible expenses |
$0 |
$1,500 |
| Your real spendable
income is: |
$17,053 |
$16,518 |
| Your annual tax savings with an FSA is: |
$535 |
|
*This example is intended to demonstrate a typical tax savings based on 28% federal and
7.65% FICA taxes. Actual savings will vary based on your individual tax situation.
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