Most credit unions already take advantage of Section 125 of the Internal Revenue Code that allows employees to pay for their share of medical and dental premiums using pre-tax dollars.  This same section of the Code also lets employees use pre-tax dollars to fund Flexible Spending Accounts (FSAs).  These FSAs can pay for a wide range of uninsured health, dental and dependent care expenses.

FSAs bring advantages to both the employee and the employer.  The employee wins by gaining a tremendous tax advantage achieved through paying for covered services at a cost that is 22% to 40% reduced (depending on the taxpayer’s income bracket and state of residence).  The employer wins by saving on payroll taxes and other payroll cost.  Often times, the tax savings more than offsets the administrative cost of the plan.

What are the downsides of an FSA?  First, since an FSA reduces an employees taxable income, it may slightly reduce their Social Security benefit at retirement.  Second, FSA plans are subject to discrimination testing and cannot inequitably benefit higher income employees. Most importantly is the “use it, or lose it” rule that states that money directed into an FSA must be spent during the plan year or be forfeited to the employer.  As with all benefits, education of your employees is essential.

That’s where Members Insurance Agency comes in.  We will work closely with you and your employees to make sure everyone understands the power of their FSA.

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