Employers who choose not to offer Flexible Spending Accounts (FSAs) as well as employers who do offer FSAs to their employees but are not properly communicating their availability and value are missing out on a valuable savings opportunity. Benefits of FSAs to the Employee: FSAs allow employees to set aside earnings on a pretax basis to finance qualified medical expenditures (copays, prescription drugs, glasses and dental care among others). Participants savings are equal to their marginal tax bracket plus FICA on the medical items. For Example- If employee Jane is in the 25% marginal tax bracket she will save: 32.65% (25% + 7.65% FICA) on FSA qualified expenditures. Benefits of FSAs to the Employer: FSAs save the employer money by avoiding the 7.65% FICA tax on employee wages diverted to an FSA. For every $10,000 in employee FSA contributions, the employer saves $765. One of the reasons employers may be holding out on their FSA plans may be related to the passing of health care reform. There have been some questions surrounding how FSA's will be affected. Starting January 1, 2011 all over the counter drugs and medicines will only be able to be purchased with tax favored account dollars (FSAs, HSAs, HRAs and Archer MSAs) if they are accompanied by a doctors prescription. All other benefits associated with FSAs are still in tact. Check out the OTC Fact Sheet for a list of medications that require prescriptions. |
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