BASE^® Blog

A Flexible Spending Account (FSA) is considered one of the most underutilized tools to help both the employer and employee save on taxes each year.  Because many don’t understand it, they don’t think they are worth the “hassle.”  So, is it worth incorporating into the employer-sponsored benefits plan?

The BASE® Flexible Spending Account (FSA) is an IRS-approved tax savings plan that provides employees with the option to pay for out-of-pocket health care expenses not covered by insurance on a tax-free basis.  The BASE® FSA is another means for an employee to pay for their out-of-pocket health care expenses and a way for an employer to maximize their tax savings.

Not only is it a no-hassle plan, but it saves both the employer and employee valuable tax dollars.  The following example shows just how valuable and why it would be worth it to invest in this benefit plan.

Daniel owns a Construction Company with 22 employees, with a group health plan in place.  He calls BASE® and sponsors a Flexible Spending Account.  Let’s take a look at one of his employees, Laura, and how much she could save by enrolling in the business’ FSA.  For both examples, Laura is paid a yearly income of $40,000.

WITHOUT the FSA, all her income will be taxed at 27.65% which is $11,060 in taxes taken out of her paycheck.  On top of that, Laura has $2,000 in unexpected health care expenses incurred throughout the year.  At the end of the year, Laura is left with $26,940 in her pocket.

WITH the FSA, Laura chooses to elect to put $2,000 into her FSA on a pre-tax basis to pay for those unexpected health care expenses incurred throughout the year.  Her taxable income is now $38,000, taxed at 27.65%, which is $10,507 in taxes taken out of her paycheck.  At the end of the year, Laura is left with $29,493 in her pocket.

Laura’s income is $26,940 WITHOUT the FSA and $29,493 WITH the FSA.  Without doing anything but electing to put her money that she would already use to pay for her health care expenses into her FSA on a pre-tax basis, Laura will save $2,753.  For Daniel, if half of his employees elected to do what Laura did, Daniel could save $1,683 a year, just by having 11 employees simply elect to put their money into an FSA.

By electing to enroll into the BASE® FSA, employees can realize more benefits than just saving hundreds, if not thousands, in valuable tax dollars each year.  With the funds being transferred on a pre-tax basis, employees save on federal, state, Social Security, and Medicare taxes, increasing their take-home pay.  Employees can choose to utilize the online portal, mobile app to easily report their medical expenses, or use our FSA debit card to pay for their qualifying expenses directly to simplify the payment/reimbursement process.

By electing to sponsor the BASE® FSA, employers can realize more benefits than just saving hundreds, if not thousands, in valuable tax dollars each year.  Employers can enhance their benefits package by providing their employees a means to pay for their health care costs, and even though the employees are electing to contribute their funds on a pre-tax basis, this helps to reduce the employer’s share of the FICA and FUTA taxes.  Employers have options for increased plan participation and savings by offering a variety of reimbursement methods, including the mobile app or debit card.

The BASE® FSA is worth more than the tax savings and what the employee takes home in the paycheck.  For more information, call BASE® at 888.386.9680 or visit www.BASEonline.com.

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Health Reimbursement Arrangements continue to grow in popularity, but many small businesses do not know if their small business qualifies to go beyond the standard deduction and save thousands in additional tax savings just by enrolling in the Section 105 HRA.

The BASE® Section 105 Health Reimbursement Arrangement is a tax savings plan that allows small business owners to deduct up-to 100% of health care costs, including individual insurance premiums and qualified out-of-pocket medical expenses as a business deduction.  It can be administered to a wide variety of qualified small businesses such as ones that classify as a Sole Proprietor, Partnership, C Corporation, or S Corporation.  With clients, on average, saving over $5,900 in valuable tax dollars.

The Section 105 HRA was designed for a self-employed individual to employ their spouse who is active in the business, and to offer that employee/spouse a health benefits plan.  That plan covers the employee, the spouse, and their dependents.

The best way to see how the Section 105 Health Reimbursement Arrangement works is by seeing an example.  Let’s check out Mark and Tara who own a family farm*.  They saved $5,076 with the Section 105 HRA.  Mark owns a family farm with his wife, Tara, who provides valuable services by helping in the field, running errands, keeping the books, and more.  Taking the advice of his accountant, Mark decides to enroll in the Section 105 HRA.  Mark formally employs and establishes a compensation package for Tara.  To pay her the appropriate W-2 wage, Mark evaluates her experience and role she plays in the business and decides to compensate Tara $14,000 per year.  The compensation breakdown is as follows: 

1. Reimbursements for family health insurance premiums:                   $7,000
2. Reimbursements for qualified out-of-pocket medical expenses:       $5,000
3. W-2 wages:                                                                                                   $2,000

                                                                                                             TOTAL:        $14,000

By enrolling in the Section 105 HRA, Mark can deduct 100% federal, state, and FICA/Medicare taxes on the $12,000 in reimbursed medical expenses (1 and 2 added above) and received $5,076 in realized tax dollar savings.

Being able to deduct 100% of the family’s health care costs helps to leave a substantial amount of potential tax savings.  The BASE® Section 105 benefits are:

• A reduction in the financial impact of health care expenses
• Out-of-pocket expenses are eligible to be paid for, while paying no taxes on reimbursements 

Want to experience the BASE® difference?   With BASE®, the 105 is portable and can work with any type of insurance plan and is easy and inexpensive to set up with employers realizing tax savings.  The necessary plan documents required by the IRS, DOL, ERISA, and the ACA are created and customized to each business with year-end reports, such as the Annual Summary Report (ASR) summarizing the medical expenses allowed for the business tax deduction.  All medical expenses once entered will be adjudicated and substantiated annually as required by the IRS.  Small businesses will have the peace of mind knowing the plan administration is handled by BASE® and in compliance, while also being provided with the service to meet their benefit needs.

To learn more about how the BASE® Section 105 HRA provides small business owners with an average of over $5,900 in savings each year, call at 888.386.9680 or visit www.BASEonline.com.

* The characters are fictional, but the numbers and tax savings are real.

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