How much do FSAs actually save you on taxes?

Hi everyone,

I’m trying to figure out if keeping my FSA really saves me enough in taxes to put up with the hassle. If I skip the FSA and just set the money aside in a bank, would I be missing out on big tax savings? I know FSAs save some because it’s not taxed, but I’m not sure by how much.

I put in the max $3,000 each year, and we use it all. My yearly income is $93,000, and with my wife’s income, we’re around $125,000 with three kids. Dealing with the FSA has been a huge pain this year, so if the savings aren’t big, I’d rather not bother.

Thanks for any insights!

Which state do you live in? From a federal tax view, it’s probably saving you around $590.

Since the $3,000 is pretax, you’re saving whatever your top tax bracket is. With your numbers, you’re probably between the 12% and 22% brackets, so roughly speaking, this would save you about $360 to $660.

@Westley
You’re getting mixed answers because some folks are using the 12% federal bracket, others 22%, and some comments aren’t factoring in FICA tax savings.

Amari said:
@Westley
You’re getting mixed answers because some folks are using the 12% federal bracket, others 22%, and some comments aren’t factoring in FICA tax savings.

Good point! A $3,000 FSA also avoids about $230 in Social Security and Medicare taxes. So total savings would be $590 to $890, plus maybe some state tax savings depending on where you live.

Amari said:
@Westley
You’re getting mixed answers because some folks are using the 12% federal bracket, others 22%, and some comments aren’t factoring in FICA tax savings.

Just fixing a typo for clarity:

> You’re getting mixed answers because some folks are using the 12% bracket, others the 22% bracket.

@Westley
Remember, it’s also deducted pre-FICA, so that adds to your savings.

With what you’ve shared, your FSA contributions likely save you somewhere between 12% and 22% on federal income tax, plus 6.2% for Social Security, and 1.45% for Medicare. So $3,000 in an FSA would save about $590-890 overall, maybe more if your state has income tax. FYI, the max FSA for 2024 is $3,200, and it’ll be $3,300 next year.

@Dale
It’s more likely the 12% bracket would apply, not 22%. OP probably meant gross income, not taxable.

Amari said:
@Dale
It’s more likely the 12% bracket would apply, not 22%. OP probably meant gross income, not taxable.

Using their $125k gross income and assuming they take the standard deduction, they’d have $95,800 in taxable income, so the $3,000 FSA is likely split across the 12% and 22% brackets. It all depends on how precise that $125k figure is.

@Dale
Wouldn’t they have other deductions, like a 401k or health insurance premiums?

Amari said:
@Dale
It’s more likely the 12% bracket would apply, not 22%. OP probably meant gross income, not taxable.

Most folks in the 22% bracket end up paying about 14-16% on average.

If you’re using up the FSA each year, it’s probably a no-brainer to keep it. Your tax savings will likely be higher than any after-tax gains you’d get from setting that amount aside in a regular account.

@Mai
Honestly, with $5k limits, it’s easy to burn through it in just a few months.

Your savings depend on your top tax rate. Just multiply your rate by $3,000 for a rough estimate.

Jean said:
Your savings depend on your top tax rate. Just multiply your rate by $3,000 for a rough estimate.

Don’t forget about the FICA and state tax savings, if applicable.

I wouldn’t drop the FSA! Sure, there’s tax savings, but think of it like this… everything you buy with FSA money is about 25% off since you’re not paying tax on it.

They say FSAs are “use it or lose it.”

Kai said:
They say FSAs are “use it or lose it.”

Yep, FSAs have that rule. Make sure you use it up.

dominic said:

Kai said:
They say FSAs are “use it or lose it.”

Yep, FSAs have that rule. Make sure you use it up.

Oops, thought you were talking about an HSA.