An FSA offers tax savings by allowing you to pay for out-of-pocket expenses with pre-tax money. Without an FSA, you would still pay for these expenses, but you would do so using money remaining in your paycheck after federal (and often state and local) taxes are deducted.
|Annual Tax Savings Example*||FSA||No FSA||FSA||No FSA|
|If your taxable income is||$50,000||$50,000||$50,000||$50,000|
|Pre-tax FSA contribution||($2,000)||0||($2,000)||0|
|Taxable income is||$48,000||$50,000||$48,000||$50,000|
|Federal income and Social Security taxes||($8,866)||($9,395)||($11,842)||($12,495)|
|After-tax dollars spent on eligible expenses||0||($2,000)||0||($2,000)|
|Available after tax income||$39,134||$38,605||$36,158||$35,505|
|Discount with an FSA||$529* or 26%||$653* or 33%|
* This example illustrates tax savings based on 25% Federal and 7.65% FICA taxes, resulting in a 32.65% discount on eligible expenses paid through an FSA. State and local taxes are not included. Actual savings will vary based on your individual tax situation, and on whether you are covered under Civil Service Retirement System (CSRS) or Federal Employees Retirement System (FERS). You may wish to consult a tax professional for more information on the tax implications of an FSA.