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.
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.
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.
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.
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.
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.