Medical flexible spending accounts (FSA). A medical FSA allows an employee to fund certain medical expenses on a pre-tax basis through salary reduction to pay for out-of-pocket, unreimbursed expenses that aren't covered by insurance (i.e., annual deductibles, office co-payments, prescriptions, over-the-counter drugs and orthodontia). The average working employee in America spends more than $1,500 annually on these types of benefits. By participating in a Medical FSA, an employee's taxable income is reduced, which increases the percentage of pay they take home.
Dependent care flexible spending accounts. The dependent care FSA is an attractive benefit for employees who pay for child-care or long-term care for their parents. Many employees don't take advantage of this benefit and may be unaware of the significant tax savings. Employees may hold back as much as $5,000 annually of their pre-tax salary for de-pendent care expenses, which include expenses they pay while they work, look for work or attend school full time. Qualified dependent care expenses may include--but are not limited to-- the care of a child under the age of 13, long-term care for parents, care for a disabled spouse or a dependent incapable of caring for himself, and summer day camps. In addition, by paying for dependent care with pre-tax dollars, your employees can save approximately 20 to 40 percent on their child-care expenses.