Flexible Benefit Plans
About Tax Free Spending Accounts
Flexible Benefit Plans let employers add solutions to their employees’ benefit package that takes into account all the various needs of employees.
One of the features of Flexible Benefit Plans is that they can help you increase your take-home pay by using pre-tax dollars.
Using the Premium Account option, you reduce your taxes by having your group insurance premiums paid with pre-tax dollars.
With the other parts of the Flexible Benefit Plan ~ the Medical Care Reimbursement and Dependent Care Reimbursement Accounts ~ you voluntarily redirect a portion of your gross pay to the plan as additional flex dollars. These dollars can then be used during the plan year to pay for the unreimbursed health care and dependent care expenses that you incur for you and your eligible family members. Please note that certain guidelines do apply.
Remember, these are pre-tax dollars and you will pay no federal or state income tax and no Social Security tax on the amount you redirect to the plan. This means you will have more spendable income ~ something we all can use!
Sample Tax Savings
The amount of your salary that you redirect into Health Care and/or Dependent Care Spending Accounts is deducted from your paycheck before taxes are calculated. Thus, the income that is subject to taxes is lower.
For example, if you elect to redirect $100 and you are in the 28% federal tax and 6% California state tax bracket, the following figures apply:
With a tax-free account
Cost of Flexible Benefits = $100
Taxes you pay on $100 of earnings = $-0-
Total you must earn to pay for the benefits = $100
Without a tax-free account
Cost of Flexible Benefits = $100
Taxes you pay on $100 of earnings = $34
Total you must earn to pay for the benefits = $134
While the benefits cost the same, you save the $34 you would have spent on taxes by using the Spending Account.
