What is a Flexible Spending Account (FSA)?
Employees Can Pay For Health Care Expenses Using Pre-Tax Dollars
Sometimes referred to as a cafeteria plan, flex plan, pre-tax health account or a Section 125 plan, a Flexible Spending Account (FSA) allows your employees to put a certain dollar amount from each payroll check into a separate account and pay for specific benefits on a pre-tax basis. Since these FSA contributions are being taken out before taxes, your employees don't pay Federal income tax, Social Security taxes, and (in most cases) State and Local income taxes on the portion of money allocated to their FSA.
See How FSA Contributions Can Save an Employee $720!
Let's say an employee wants to have $2,400 taken out of their check to put into their FSA. This money is taken out of their check before taxes are taken out. So that reduces their taxable income by $2,400.
If this employee normally pays 30% in Federal, Social Security and State income taxes, they would benefit from a 30% tax savings on this $2,400. That means they could receive a tax savings of $720 on the $2,400 they contributed to their FSA!
What Expenses are Covered by an FSA?
- Deductibles and co-pays
- Prescription drugs
- Dental services, orthodontics, and dentures
- Eyeglasses, contacts, solutions, and eye surgery
- Adult and child daycare services
- Plus many more...
When employees use tax-free dollars to pay for these health care expenses, they realize an increase in their spending power and a substantial tax savings. The company saves too - about 8% (7.65% FICA match) on every dollar employees contribute to the plan. Many business owners are amazed when they find out that offering pre-tax health accounts can actually help their company save on payroll costs. Depending on how large or small your company is, a pre-tax health option may save you thousands of dollars each year.
Flex Cards Make Paying for Health Care Expenses Easy
When you offer your employees a Flexible Spending Account through PrimePay, you can give them the option to pay for their FSA eligible expenses using a Flex Debit Card. What is an FSA Debit Card? A Flex Card is a stored value, debit card that contains the money that an employee puts into their FSA account.
- This FSA Debit Card can be used at participating pharmacies, doctor's offices or providers that accept MasterCard for FSA eligible expenses
- Pharmacies and retailers that have an inventory information approval system in place are able to recognize FSA eligible items... allowing the debit card to be used for these purchases
- Employees can use the Flex Card to pay for prescription drugs, dependent care expenses, and much more
- A Flex Debit Card eliminates the need for employees to pay for these expenses up front and then submit a claim form for reimbursement