Generally, contributions you make to your FSA are not subject to federal or social
security taxes. In most instances, there are no state taxes taken out either. The
amount you may save depends upon:
- The amount you put into your FSA
- The tax percentage you would normally pay on that money (tax bracket)
If you elect $2,000 in an FSA, the money is taken out of your check before taxes.
That reduces your taxable income by $2,000. If for example, you pay 30 percent in
federal, social security, and state taxes you would have a tax savings of 30 percent
of the $2,000. In other words, your estimated savings would be $600 on the $2,000
you directed to your FSA. **This example should not be taken as tax advice. See a
tax adviser to seek the best advice for your situation.