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If you use the flexible spending account, you pay for eligible expenses with pre-tax dollars, which means you contribute before federal income taxes and Social Security, or FICA, taxes are withheld. As a result, your taxable income will be reduced so your taxes will be less.

Example Scenario

The following example shows how using the health care flexible spending account can reduce taxes and increase take home pay. Note: The federal child tax credit allows taxpayers to reduce their taxes by $1,000 for each qualifying child under age 17.

Assume you're married, have a joint income of $58,000 per year with one dependent child and contribute $5,000 to the flexible spending account.

In this example, you would have an additional $1,126 in annual take-home pay because you used the flexible spending account.

  With Account
Without Account
Gross income $58,000 $58,000
Annual FSA contributions - 5,000 - 0
W-2 income 53,000 58,000
Standard deduction - 10,900 - 10,900
Personal exemptions ($3500 x 3) - 10,500 - 10,500
Taxable income 31,600 36,600
Income tax (after $1000 child tax credit) 3,941 4,684
FICA tax on W-2 income + 2,417 + 2,800
Total federal taxes 6,358 7,484
After-tax income 25,242 29,116
After-tax health care expenses - 0 - 5,000
Spendable income 25,242 24,116
Savings with FSA $1,126