In the era of rising copays and deductibles, flexible spending accounts represent an opportunity for employers to help make healthcare more affordable for employees. With an FSA, employees can self-fund with tax-free dollars the growing costs of health insurance.
According to the FSAFeds.com website, “A Flexible Spending Account (FSA) is a tax-favored program offered by employers that allows their employees to pay for eligible out-of-pocket health care and dependent care expenses with pre-tax dollars.”
In essence, employees get a discount on health care expenses (not covered under the employer’s insurance plan) equal to the taxes they would have otherwise had to pay on that money. They are able to make contributions to this employer-sponsored account – and withdraw funds when needed – tax-free.
Learn more about the specifics of flexible spending accounts.
FSA Benefits for Employees
- Tax savings of 20-40% on out-of-pocket health care and dependent expenses
- Reduced taxable income (federal and state)
- Increased take-home pay
- Savings on the employee portion of Social Security taxes
Qualified expenses include: health insurance premiums; out-of-pocket medical expenses; some prescription and over-the-counter medications; day care provider fees; dependent care for children up to age 13 or disabled spouse/dependents; and private pre-school and kindergarten expenses. The savings associated with an FSA can make a big difference for your employees.
Read more about how the Affordable Care Act changed FSA policies for the better.
FSA Benefits for Employers
- Total savings on employer portion of Social Security taxes on employee contributions to FSAs
- Reduced payroll taxes (by 7.65 percent of total employee contributions)
- FSA options can be personalized based on employee needs and preferences
- Comprehensive benefits packages help recruit and retain talent
Employers are required to following certain legal guidelines when setting up an FSA for its employees. Requirements surrounding FSAs tend to be complex. Contact Employer Advantage Group to learn more about setting up flexible spending accounts and about your company’s options.