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Advantages and Disadvantages of Using Flexible Spending Accounts
Home » Insurance » Flexible Spending Accounts » Advantages and Disadvantages of Using Flexible Spending AccountsHaving a FSA plan is good for the employee because it gives him/her the ability to have benefits he/she would not normally have. But there are advantages and disadvantages to having one. Here are some of the advantages:
• Pay expenses: Employees can use the plan to pay expenses that they normally would not have been able to pay with after tax dollars.
• Tax savings: Employees also enjoy a tax savings including their federal, state, and local income taxes. Plus employees do not have to pay Social Security or Medicare tax on the amount deducted.
Here are the disadvantages:
• Use the money or lose it: If the employee takes out this plan and has money stored in it at the end of the year, he/she will lose it. The money legally becomes the property of the employer.
• Pension: If the money coming out of the employee's paycheck is based on salary, the FSA plan will be reduced unless the employee evaluates the plan and makes revisions to avoid this problem. Any employee, who is near to retirement and has a FSA, can find it will have an affect on his pension, since the pension is based on an average salary that the employee received in the last number of years.
• Life insurance and disability: Life insurance and disability are usually based on salary. In this case the employer has to decide whether to deduct these types of benefits first before deducting the FSA.
• Workers Compensation: Regarding workers compensation and unemployment benefits, since these are based on the average salary or monthly wage of the worker, for those who earn above the maximum monthly wage, their benefits could be reduced.
Related Flexible Spending Accounts Articles
- Flexible Spending Accounts Overview
- What is a Flexible Spending Account (FSA) and how does it Work?
- Advantages and Disadvantages of Using Flexible Spending Accounts
- How to Plan Your FSA