The Section 125 Cafeteria- FSA - Employer Savings

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"The Tax Break Employers Can`t Afford To Ignore!"

Assuming 100 employees each earning $30,000 per year subject to withholding taxes of 25%, the following example shows the savings employers can experience by offering flexible spending accounts to their employees:

Tax Savings Example

The savings to the employer:

 

Without Cafeteria Compensation

Gross Payroll

                         $3,000,000

 

FICA Tax @ 7.65%

$229,500

 

 

 

With Cafeteria Compensation

Gross Payroll

$3,000,000

 

LESS:

 

 

Employee Health Insurance

($120,000)

 

 

Day Care Expenses

($25,000)

 

 

Health Care Expenses

($20,000)

 

 

Disability & Term Insurance

($25,000)

 

Taxable Payroll

$2,810,000

 

FICA Tax @ 7.65%

$214,965

 

 

 

Net gain realized per year by employers by not having to pay FICA taxes on qualifying expenses.

$14,535

 

The aggregate savings to the employees:

 

Without Cafeteria Compensation

Withholding Taxes @ 25% of $3,000,000

$750,000

 

 

 

 

With Cafeteria Compensation

Withholding Taxes @ 25% of $2,810,000

$702,500

 

 

 

Net gain per year realized by employees not having to pay withholding taxes on qualifying expenses.

$47,500

 

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Please note the savings does not reflect other payroll taxes, such as SUI, FUTA and workers compensation, which depends on your organization.

 

 

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