A flexible spending account (FSA) can be included in the benefits package employers offer to employees. This type of plan allows employees to set aside pre-tax dollars to use for eligible medical expenses.
How Flexible Spending Accounts Work
With flexible spending accounts, an elective portion of the employee’s salary is set aside before taxes. Throughout the plan year, the employee can use the set-aside funds to pay for a variety of healthcare expenses, including deductibles, copays, coinsurance, and prescriptions. Because the funds are taken pre-tax, employees save money on their out-of-pocket expenses for medical services and medications.
Why Flexible Spending Accounts Are a Good Idea
FSAs benefit both employers and employees. They are an attractive addition to an employee benefits package to help companies recruit and retain top talent. Employees do not pay taxes on the portion of their salaries set aside for a flexible spending account, and that increases their take-home pay and tax savings.
Employer contributions are tax-deductible when they are paid to an FSA plan participant to reimburse an eligible expense. In addition, as FSA deferrals lower the amount of an employee’s adjusted income, they also reduce the amount of matching employer FICA contributions and federal unemployment tax.
Cost of a Flexible Spending Account Plan
Employers typically pay an annual fee for a flexible spending account plan, plus a monthly charge per employee. The cost to your company can depend on several factors, including your business location and the number of people you employ. Many times, the tax savings to the employer offsets most of the annual cost of FSA plan administration. Our team at Reese Insurance Group can help you find an FSA plan that is appropriate for your business and the bottom line.