What are the tax advantages of offering FSAs to my employees?

Employees' taxable income is reduced by their FSA contributions, so employers pay less in Medicare and Social Security taxes (together, FICA taxes). Higher enrollment rates mean more savings for the employer.

For example:

  • A company signs up for a Standard Plus Contract that begins Jan 1st and ends Dec 31st.
  • 10 employees enroll. Each elects $2,000 for the year.
  • The employer's portion of FICA taxes is 7.65% on taxable wages, so if 10 employees enroll and elect $2,000 each, the employer saves $1,530 in taxes.
  • The employer's cost for the plan is: 150 + (10 employees x $4 each x 12 months) = $780.

By offering the FSA, this employer saves $750 a year by allowing their employees to save on their own taxes.

The example on this page is simplified to generally illustrate the tax savings of an FSA. Zenefits does not provide tax advice. Please contact a tax advisor to determine the actual benefit to a specific company or employee.

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