Preferred FSA Header - How Can It Reduce Your Taxes?

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Preferred FSA - How Can It Reduce Your Taxes?

Spending accounts reduce your taxes by reducing your taxable income. Using these pre-tax accounts can make a significant difference in your take-home pay.

 

Example #1

 

The chart below illustrates what would happen if your annual pay is $45,000 and you have to pay $2,000 in health or dependent care expenses not covered by any other benefit plan.

 

Example After-tax (without account) Pre-tax (with account)
Annual pay
$45,000
$45,000
Pre-tax contribution used for expenses
0
2,000
Sub-Total
$45,000
$43,000
Standard Deduction
- 10,900
- 10,900
Exemptions
- 14,000
- 14,000
Sub-Total
$20,100
$18,100
Federal income taxes*
- 2,209
- 1,909
Social Security taxes
- 3,443
- 3,290
After-tax payment for expenses
- 2,000
- 0
Take-home pay
$37,349
$37,802

 

Total tax savings from using pre-tax dollars is $453.

 

*Based on 2008 tax laws. Assumes you are married, file jointly with your spouse, take the standard deductions and four exemptions.