Cafeteria Plan / Flexible Spending Account

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What is a FSA, how does it work?

Flexible Spending Accounts enable you to set aside a predetermined dollar amount in an account to cover eligible out-of-pocket health care and dependent day care expenses throughout the year. IRS rules allow you to contribute to your account(s) through payroll deduction on a pre-tax basis — before federal income tax, social security, or (in most cases) state withholding taxes are deducted — reducing your taxable income. Then, as needed, you can withdraw funds from your account(s) to reimburse yourself for the eligible expenses you've paid. The dollars set aside in a Flexible Spending Account are actually worth more because they're tax-free. As a participant, you pay no taxes on the contributions or the withdrawals.

  • Pre-tax
    Income
  • Taxable
    Amount
  • Predetermined
    Tax-free
    Amount

Your employer offers two types of accounts:

  • Health Care Flexible Spending Accounts
  • Dependent Care Flexible Spending Accounts.

By spending pre-tax FSA dollars on these expenses, you get more benefits and you’ll take home more money.

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Save up to 40% with a FSA on these eligible out-of-pocket expenses*

Healthcare expenses for you, your spouse or your qualifying child or relative
  • Office co-pays
  • Prescription drugs
  • Dental – including child and adult orthodontia
  • Vision care – including laser eye surgery
  • Chiropractic
  • Acupuncture
Employment related dependent care expenses
  • Care for your qualifying child under the age of 13
  • Care for your spouse or your qualifying child or relative who is physically or mentally incapable of self-care

* FSA contributions are deducted before federal and most state taxes. Check with your tax advisor.
* This applies to healthcare expenses only. Dependent care expenses are reimbursed based on the availability of funds in your account.

What would you do with an extra $1,400?

FSA savings comparison – example** FSA No FSA
Annual Taxable Income $35,000 $35,000
Out of Pocket Expenses:
Healthcare $1,000 $0
Dependent Care $2,400 $0
Total Pre-tax Contributions ($3,500) ($0)
Taxable Income After FSA Contributions $31,500 $35,000
Federal & State Income & Social Security Taxes (40%) ($12,600) ($14,000)
After-Tax Income $18,900 $21,000
After-Tax Dollars Spent on Health and Dependent Care Expenses $0 $3,500
Take-home Pay $18,900 $17,500
Increased Take-home Pay $1,400 $0

* This example is intended to demonstrate typical tax savings based on a total income tax rate of 40%. Actual savings is based on individual tax situations.
* FSA contributions are deducted before federal and most state taxes. State taxes do apply in many states. Check with your tax advisor.

Open an FSA in three easy steps

1. Before your employer’s next open enrollment period, determine how much you expect to spend on qualified healthcare (including many OTC products) and dependent care in the coming year.

  • You may enroll during open enrollment or if you have a change of status.
  • You “MUST” re-enroll in these plans every year.

2. Use FSA calculator to figure out exactly how much you should put into your FSA and calculate your annual savings.

3. Submit your FSA enrollment form with your healthcare and/or dependent care elections during your open enrollment.

Contact your human resources department for additional information about FSAs and how you can take advantage of this valuable benefit.