Benefits Plans - Flexible Spending Accounts: Advantages
You lower your taxable income.
The money that goes into a Flexible Spending Account is subtracted from your gross salary before the tax on your earnings is calculated. In other words, your taxable income is reduced by the amount of your annual Flexible Spending Account contribution. And by reducing your taxable income, you reduce the taxes you pay.
Your other University benefits are not affected.
Your Flexible Spending Account contributions lower your taxable income, but they do not lower the amount of salary used to calculate your other benefits - including your Retirement Plan contributions, Long-Term Disability, Group Life Insurance and Travel Accident Insurance.
You realize additional savings.
Since contributions deposited into your Flexible Spending Account are tax-exempt, you are using tax-free dollars to pay your eligible health care and dependent care expenses. Also, Flexible Spending Accounts have a built-in budgeting component: when you make your annual contribution, you have ensured that you will have money available to pay for your eligible medical and dependent care expenses. And with the prompt reimbursements provided by PayFlex, you will have access to the total amount available for eligible health care expenses as soon as the medical care is provided.
You receive immediate benefits.
When you use a Flexible Spending Account, you realize immediate tax savings every payday. If you take medical expense deductions or claim a dependent care tax credit, you cannot claim your savings until you file your annual tax return.
Having a Health Care Flexible Spending Account may be more advantageous than merely taking medical expense deductions when you file your tax return.
Only those medical expenses
that exceed 7.5% of your adjusted gross income can be
deducted when you file your annual federal income tax
return, whereas all amounts contributed to a Health Care
Flexible Spending Account - beginning with the first dollar
- are tax-exempt. And you'll be reimbursed even for small
amounts, such as co-pays, prescription expenses, and other
minor medical and dental expenses.
Dependent Care Tax Credit.
Depending on your annual income, a Dependent Care Flexible Spending Account may also be more advantageous than taking a Dependent Care Tax Credit on your tax return.
The University of Michigan in its sole discretion may modify, amend, or terminate the benefits provided with respect to any individual receiving benefits, including active employees, retirees, and their dependents. Although the university has elected to provide these benefits this year, no individual has a vested right to any of the benefits provided. Nothing in these materials gives any individual the right to continued benefits beyond the time the university modifies, amends, or terminates the benefit. Anyone seeking or accepting any of the benefits provided will be deemed to have accepted the terms of the benefits programs and the university's right to modify, amend or terminate them.