Section 125 Flexible Spending
The Section 125 plan offers employees the opportunity of participating
in a medical care spending account and dependent care spending account.
Participation in either or both of these accounts offers tax-free
reimbursement of health care and dependent expenses NOT reimbursed
by insurance. By redirecting a portion of your pre-tax salary to these
Section 125 accounts ou essentially “bank” your money
in a tax-free account. The pre-tax dollars you elect to contribute
to the plan are exempt from Federal, State, and FICA taxes which result
in a saving to you of between 25% to 38% of your dollars you contribute
to the accounts, depending on your individual tax bracket.
| EXAMPLE: |
|
| Here is an example of how a Flexible Spending Accounts
(FSAs) work for an employee earning $1,000.00 per month: |
Family health care expenses (dollars paid out of pocket
for deductible, dental work, eye glasses, etc.) |
$100.00 per month |
Dependent care expenses (dollars paid out of pocket for
day care, summer day camp, etc) |
$300.00 per month |
| TOTAL CONTRIBUTIONS TO FLEX ACCOUNT: |
$400.00 per month |
| |
WITHOUT FLEX
ACCOUNT |
WITH FLEX
ACCOUNT |
| Gross Monthly Salary |
$1,000.00 |
$1,000.00 |
| Deduction to Health Care Account |
$0 |
($100.00) |
| Deduction to Dependent Care Account |
$0
________ |
($300.00)
________ |
| Adjusted Taxable Salary |
$1,000.00 |
$600,00 |
| Less Income Tax (20%) |
($200.00) |
($120.00) |
| Less Social Security Tax (7.65%) |
($77.00)
________ |
($46.00)
________ |
| Salary After Taxes |
$723.00 |
$434.00 |
| Less After-Tax Expense-Medical |
($100.00) |
$0 |
| Less After-Tax Expense-Dependent Care |
($300.00)
________ |
$0
________ |
| Monthly Spendable Income |
$323.00 |
$434.00 |
| Net Amount Saved |
|
$111.00 |
| Annual Net Amount Saved |
|
$1,332.00 |
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