How to Calculate a Flexible Spending Account

Flexible Spending Accounts (FSA) are a type of benefit that many large companies provide for their employees. FSAs allow individuals to have money deducted from their paychecks prior to taxation and saved into an FSA for use on medical expenses or child care. By deducting the dollars prior to withholding taxation, an individual's annual tax burden is lowered, and cash is set aside for medical care, procedures, medication and/or child care costs. The annual limit for medical is $2,500 and child care is $5,000. As expenses are incurred during the year an employee withdraws money from the FSA, and unused funds are retuned early the following year. FSAs are governed by federal law and thus the rules are consistent across all states.

Instructions

1. Determine the frequency of paychecks on an annualized basis. For example, if an employee is paid twice a month, then there are 12 X 2 = 24 paychecks.

2. Determine the amount of money to be set aside. Most plans do not require the maximum, but for this example let's assume $2,500.

3. Divide $2,500 by 24 to equal $104.17. This is the amount that will be deducted per paycheck to support a $2,500 annual FSA.

References

• Internal Revenue Service: Flexible Spending Arrangements (FSAs)