Benefit to Employee
HOW DOES THE EMPLOYEE BENEFIT?
The employee can choose to participate in the plan or not. If the employee participates in the plan part of his/her taxable wage is converted into tax-free benefits. This can be a big tax savings for the employee and provides an increase in take-home pay through reduced taxation. The following information summarizes the options that can be offered tax-free through a Flexible Benefit Plan.
Child/Dependent Care Expenses
Employees can pay up to $5,000 in child/dependent care expenses per family per year tax-free. In general, the tax savings for employees enrolled in a child/dependent care spending account can be greater than the federal income tax credit for care expenses. Eligible dependents must be children under age 13 and older dependents must be unable to care for themselves because of a physical or mental handicap. Eligible child/dependent care expenses are those expenses considered necessary to employment.
Out-of-Pocket Medical, Dental and Vision Expenses
Employees can pay their family's medical, dental and vision expenses tax-free within the medical spending account. These expenses can include glasses, braces, prescriptions, deductibles, co-payments, other out-of-pocket expenses not paid by an insurance plan and some over-the-counter medications.
This benefit allows employees to pay for their share of health, dental and vision insurance premiums with before-tax dollars. The employee's tax savings realized by participation in a Flexible Benefit Plan can reduce the cost of the employee-share of premiums by 25% or more.
Employee-paid disability insurance and & term life insurance premiums (to $50,000 death benefit) may also be eligible on a before-tax basis.
NOTE: Availability of these tax-free options are limited to the options provided within the employer's Flexible Benefit Plan design and must comply with state and federal regulations.
Employer Tax Benefits
HOW DOES THE EMPLOYER BENEFIT?
Payroll Tax Savings
A Flexible Benefit Plan allows employees to redirect part of their taxable payroll into tax-free benefits. Employers are not required to pay FICA or Medicare taxes on these benefit dollars. This reduces the company's payroll tax liability. Results are directly related to employee participation in the plan. Proper communication and employee understanding of the plan is critical. Here's how the employer saves. Example: One employee redirects $5,000 from taxable salary into tax-free child care dollars. The employer saves $382 in FICA and Medicare taxes in one year. ($5,000 x 7.65% FICA/Medicare = $382 in payroll tax savings). If ten employees participate at $5,000 per employee per year the employer saves $3,820 in FICA and Medicare taxes in just one year!
Most Plan Sponsors see a significant return on their consulting fee investment within the first year of implementing a Flexible Benefit Plan. Existing plans often double their enrollment results and the company's savings when they use our services! Why? Because employees understand the benefits available to them and participate.
A Flexible Benefit Plan allows employers to diversify their benefits without increasing costs. Employees can buy their own benefits using tax-free dollars.
Benefit Cost Controls
Using a Flexible Benefit Plan employers can allocate a fixed benefit dollar amount for each employee for the plan year. A benefit budget is clearly established. The employee can then spend these dollars on the benefit choices offered during open enrollment. This eliminates budget surprises and worries throughout the year.