People don't talk about this hidden FSA benefit - BuyFSA

People don't talk about this hidden FSA benefit

A Flexible Spending Account is an income-tax free account offered through your employer as a health benefit to tag onto your health plan. The accounts offer tax free spend on qualified medical products and services.

What people don't realize is that the benefit extends beyond simply receiving the income tax deduction. Don't get me wrong, it's great savings as the average FSA holder gets a 30% discount on their qualified health spend. Of course, this depends on your tax bracket.

Your savings are calculated as your federal tax % + state tax % = FSA Savings %.

Now let's get to the hidden benefit that no one talks about... Your FSA contribution is paid over the course of the entire year, but you get the full dollar amount on day one of your plan year. This is effectively a free loan.

Each pay period, a portion of your total yearly FSA election is paid. If you assume 27 pay periods in a year, this means a $2700 FSA contribution would result in reducing your paycheck by $100 each month. Don't worry, it's not all bad - this means you don't pay taxes on those dollars. With our calculation and assumptions above, this means you're actually saving $30 on each pay check for your FSA qualified expenses.

There it is. Now you know. Go on and spend those funds (and that free up front loan) for all your qualified medical needs.

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