HOW DOES A FLEXIBLE BENEFITS
PLAN WORK?
A Flexible Benefits Plan is
a plan that truly benefits both the employer and the employee.
The Employer and Employee tax savings achieved with a Flexible
Benefits Plan result from converting the amount of taxable salary an employee would use to
pay for certain expenses into non-taxable employee benefits. This is done through a Salary
Reduction Agreement. The agreement is entered into between the Employer and the Employee
for a given Plan Year pursuant to the written terms of the Flexible Benefits Plan.
Here are some examples that
illustrate how employees are able to increase their take home pay by participating in a
Flexible Benefits Plan.
Assume an employee earning $2,000 per
month with assumed marginal income tax brackets of 15%
Federal and 6% State. Also assume the employee pays $300 per
month for dependent health insurance premiums.
WITHOUT FLEXIBLE
BENEFITS PLAN
| ORIGINAL
GROSS TAXABLE WAGES |
$2,000
|
|
|
Federal Income Tax |
15.00% |
($300) |
|
|
|
State Income Tax |
6.00% |
($120) |
|
|
|
FICA & Medicare |
7.65% |
($155) |
|
|
|
|
28.65% |
|
($575) |
|
| Net Take
Home Pay |
$1,425 |
|
|
LESS
Health Insurance Premiums |
|
|
($300) |
|
| NET
EMPLOYEE PAY CHECK |
|
$1,125 |
|
In the next example, we
will make one change. In this case, THE EMPLOYER WILL
PAY for the dependent health premium and will do so by
reducing the employee's original monthly taxable wages by
the same amount
WITH
FLEXIBLE BENEFITS - PREMIUMS ONLY
| ORIGINAL
GROSS TAXABLE WAGES |
$2,000 |
|
|
Less
Health Insurance Premium |
($300) |
|
| Reduced
Taxable Wages |
$1,700 |
|
|
Federal
Income Tax |
($250) |
|
|
|
State Income
Tax |
($100) |
|
|
|
FICA &
Medicare |
($130) |
|
|
|
|
($480) |
|
| NET
EMPLOYEE PAY CHECK |
$1,220 |
|
|
|
|
|
|
| Additional
Monthly Take Home Pay (After Taxes) |
$95 |
|
| Additional
Annual Take Home Pay (After Taxes) |
$1,140 |
|
|
In this example, the employee
will be allowed to redirect his taxable wages to pay for tax
free benefits that are applicable to his INDIVIDUAL
SITUATION.
| Original
Gross Taxable Wages |
$2,000 |
|
|
|
($300) |
|
|
Less
Dependent Care Deduction |
|
($300) |
|
|
Less
Unreimbursed Medical Deduction |
|
($
40) |
|
| Reduced
Taxable Wages |
$1,360 |
|
|
Federal Income Tax |
($204) |
|
|
|
|
|
|
|
|
|
|
|
|
|
($390) |
|
| NET
EMPLOYEE PAY CHECK |
|
$970 |
|
PLUS Dependent Care
Reimbursement |
|
$300 |
|
|
PLUS Medical Care
Reimbursement |
|
$
40 |
|
| TOTAL
INCOME |
$1,310 |
| Additional
Monthly Take Home Pay (After Taxes) |
$185 |
| Additional
Annual Take Home Pay (After Taxes) |
$2,220 |
|
|
