FSA Part 2
Bottom line
Let's save you some money on those medical expenses.
In the last post (Part 1), I wrote about Flexible Savings Accounts and their potential benefit. Over the next series of posts, we'll learn more about how you can use these accounts to your advantage to leave more money in your pocket.
As promised, this post will look at a simple example.
Let's assume an annual salary of $40,000 for a family of 4. Let's also assume the federal income tax rate is at 15%. For simplicity, we are going to exclude all other taxes and use the 15% rate as a fixed rate for the entire salary.
Sarah, the first child in the family, requires a surgery to get her healthy. Unfortunately, the procedure costs $1,000 and is not covered by the family insurance plan. Let's consider two scenarios, assuming everything else is equal, we will see that by having and using an FSA, this family saves more money:
Scenario 1
Family doesn't have an FSA and pays out of pocket for the medical procedure using after-tax money.
Total gross income: $40,000
Total after-tax income: $34,000
Total after paying procedure: $33,000
Scenario 2
Family has enough money in FSA to pay for procedure and claims the procedure through their employer.
Total gross income: $40,000
Total FSA contribution: $1,000
Total after-tax income: $33,150
Total after paying procedure: $33,150
The end result is a savings of $150 for simply taking advantage of a benefit offered by an employer and taking the time to plan. The extra $150 comes from the FSA money being sheltered from federal income tax.
Next post we will consider what happens if you don't have enough in your FSA to pay for an uninsured procedure. Yes, there's a way to do it!
Let's save you some money on those medical expenses.
In the last post (Part 1), I wrote about Flexible Savings Accounts and their potential benefit. Over the next series of posts, we'll learn more about how you can use these accounts to your advantage to leave more money in your pocket.
As promised, this post will look at a simple example.
Let's assume an annual salary of $40,000 for a family of 4. Let's also assume the federal income tax rate is at 15%. For simplicity, we are going to exclude all other taxes and use the 15% rate as a fixed rate for the entire salary.
Sarah, the first child in the family, requires a surgery to get her healthy. Unfortunately, the procedure costs $1,000 and is not covered by the family insurance plan. Let's consider two scenarios, assuming everything else is equal, we will see that by having and using an FSA, this family saves more money:
Scenario 1
Family doesn't have an FSA and pays out of pocket for the medical procedure using after-tax money.
Total gross income: $40,000
Total after-tax income: $34,000
Total after paying procedure: $33,000
Scenario 2
Family has enough money in FSA to pay for procedure and claims the procedure through their employer.
Total gross income: $40,000
Total FSA contribution: $1,000
Total after-tax income: $33,150
Total after paying procedure: $33,150
The end result is a savings of $150 for simply taking advantage of a benefit offered by an employer and taking the time to plan. The extra $150 comes from the FSA money being sheltered from federal income tax.
Next post we will consider what happens if you don't have enough in your FSA to pay for an uninsured procedure. Yes, there's a way to do it!
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