The Investment Scientist

Posts Tagged ‘tax exempt

FSA: It’s all about flexibility

Flexible Spending Accounts (FSAs) are benefits offered by some employers. Money put in the accounts is exempted from income tax, payroll tax, and in most cases state and local taxes.

There are generally two types of FSA: health care FSA and dependent care FSA. As the names imply, money in a health (dependent) care FSA can only be used towards eligible health (dependent) care expenses.

Take my wife as an example; she put $2,000 into her health FSA and another $5,000 into her dependent care FSA. Since we are in the highest tax bracket and we live in a high tax state, the total tax saving is close to $3,500, or 50%.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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