Why should I participate in an FSA?

Enrollment begins Oct. 29

With Open Enrollment for your 2009 benefits fast approaching, you may have heard about flexible spending accounts (FSAs) and wondered, “Would this help me save money?”

FSAs are used to pay for out-of-pocket health care or dependent care expenses. Money is deducted from your paycheck, before it is taxed, and is available for you to use to pay for health care or dependent care expenses. This lowers your taxable income and provides immediate access to an account to use to cover out-of-pocket costs.

After reading this example, can you see the value of using an FSA? Don’t forget that you must annually elect an FSA health care and dependent care account during Open Enrollment, which this year runs from Oct. 29 through Nov. 15.

While the Internal Revenue Service (IRS) allows employees to take pretax deductions, you must use all funds set aside for an FSA, or forfeit any contributions not used by Dec. 31. UPMC uses the IRS “grace period,” which extends to March 15 — the timeframe to incur eligible health care expenses and use any remaining balance.

If you want to learn more about FSAs, stop by one of the benefit fairs and talk to a MyFlex Advantage representative from UPMC Health Plan. You can also review the FSA information on the Benefits section of Infonet.

Let’s see how Christy is able to save money by participating in FSAs.

Christy, age 37, a single parent of a 7-year-old, has an annual income of $45,000. Christy and her daughter are enrolled in the UPMC Advantage HMO and the United Concordia Standard Dental Plan.

Here is what Christy estimates that she will spend on health care in 2009:

• Office visit copayments	$250
• Over-the-counter medications	$150
• Braces for Christy’s daughter	$1,200

(Dental coverage will pay $1,000 toward the cost of braces; Christy is responsible for the remainder.)

• Total out-of-pocket medical expenses

$1,600

She also anticipates expenses of $2,000 in 2009 for an after-school child care program until 6 p.m. every week night during the school year for her daughter.

• Total child care expenses

$2,000

The chart below shows how much money Christy can save during the year by enrolling in the MyFlex Advantage dependent care and health care FSA.*

Christy’s Estimated Savings

	Without an FSA	With an FSA
Gross Annual Income	$45,000	$45,000
Total Annual Health Care FSA Contribution	$0	$1,600
Total Annual Dependent Care FSA Contribution	$0	$2,000
Total Taxable Income	$45,000	$41,400
Federal & Social Security Tax Paid	$11,116	$9,940
After-Tax Dollars Spent on Health Care and/or Dependent Care Expenses	$3,600	$0
Net Annual Income	$30,284	$31,460
Total Estimated Savings		$1,176

Christy was able to cut her net out-of-pocket expenses by almost 32 percent by reducing her taxes through use of the FSAs.

* This savings scenario is for illustrative purposes only and is an estimate. Actual tax savings may vary depending on factors such as state and local tax withholding laws, filing status, and other pretax deductions.

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