Effect on Other Benefits
Social Security Tax (FICA): Contributions to HCFSA may reduce your Social Security taxes. If so, based on current Social Security law, Social Security benefits at your retirement age may be slightly less as a result of your participation in HCFSA. However, the effect would be minimal and would be offset by the amount saved in taxes today.
Pension: Contributions to HCFSA have no effect on your pension contributions or benefits.
Deferred Compensation: Contributions to HCFSA will have no effect on your participation in a 457, 401(k), Roth 401(k) or 403(b) plan.
Learn more about FICA from the Office of Payroll Administration
Learn more about the Deferred Compensation Plan
Effect on Taxes
Contributions to HCFSA are made through automatic payroll deductions on a before-tax basis. Therefore, your taxable income on your Form W-2 will be reduced for federal income taxes and Social Security taxes (FICA). HCFSA will not affect your state or local taxes.
HCFSA and Federal Itemized Deductions
The expenses that qualify as eligible health care expenses for HCFSA are generally the same for federal itemized deductions. Any expenses paid or reimbursed under HCFSA cannot be taken into account when calculating your federal itemized tax deductions and vice-versa.
With HCFSA, you may obtain pre-tax benefits on health care expenses whether or not they exceed the federal itemized deduction minimum of 7.5%.
Your actual tax savings under HCFSA will vary depending on your income, whether you pay FICA taxes, the number of your dependents, and your eligible expenses.
While you may use both HCFSA and federal itemized deductions in the same tax year, you must be sure that:
The following is an example of the HCFSA tax advantage based on the federal tax withholding table effective January 1, 2012. The projections made on this sheet are only estimates of federal tax information and should not be assumed to be tax advice. Be sure to consult a tax advisor to determine the appropriate tax advice for your financial situation.
Your health care itemized deductions are reduced by what you receive in the applicable Plan Year from HCFSA, and
You do not claim the same expense more than once.
Example: Married employee earning $60,000 declaring spouse with two dependents and filing jointly; HCFSA annual contribution $2,500 and employee incurs $2,452 in reimbursable health care expenses;
|Health Care Expenses Paid||Before Taxes||After Taxes|
|Before-Tax Reduction for Health Care Expenses|| -$2,452|| -$0|
|Administrative Fee|| -$48|| -$0|
|Adjusted Gross Income||$57,500||$60,000|
|Federal Income Tax||-$3,815||-$4,190|
|Social Security Tax||-$4,399||-$4,590|
|After-Tax Cost of Health Care Expenses|| -$0|| -$2,452|
|Take-Home Pay (assuming no other payroll deductions)||$49,286||$48,768|
|HCFSA Tax Savings||$49,286- $48,768= $518|
Calculate your approximate tax savings
See the HCFSA FAQ