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<br />You may have up to 2 Y2 months to spend money leftover in your FSA's at year's end. This grace period <br />allows you to have as long as 14 months and 15 days (the 12 months in the current cafeteria plan year <br />plus the grace period) to use the benefits or contributions for a plan year before those amounts are <br />"forfeited" under the "use-it-or-lose it" role. Forfeited amounts help to offset the administrative costs of <br />the program. <br /> <br />The Tax Advantage <br /> <br />The amounts you redirect to the FSAs reduce your taxable income, which means that you pay less in <br />taxes. Your contributions as well as the money reimbursed to you are not subject to: <br /> <br />· Federal income taxes; <br />· Social Security (FICA) taxes; and <br />· State income taxes. <br /> <br />Here's An Example - Marie has a daughter and she pays $350 per month for day care. Marie is married and earns <br />a salary of $23,000 per year. She claims one federal/state exemption. <br /> <br />Marie's Non-Covered Day Care Current Pay per With FSA <br /> Chart!es Month <br />Day Care $ 350/month Gross Pay $ 1,916.67 $ 1,916.67 <br /> Pretax Day Care .00 -350.00 <br /> Reim bursement <br />Annual $4,200.00 Taxable eross $ 1,916.67 $ 1,566.67 <br />Expense Fed taxes - 168.00 - 120.00 <br /> State taxes - 38.00 - 31.00 <br /> FICA taxes - 146.63 - 119.85 <br /> Net Pav $ 1,564.04 $ 1,295.82 <br /> Health care FSA .00 + 350.00 <br /> (reimburse for day <br /> care*) <br />Total $4,200.00 Spendable Income $ 1,564.04 $ 1,645.82 <br /> <br />*This amount will depend on the receipts that Marie submits for qualified day care expenses and the <br />frequency with which her plan makes reimbursements. After being reimbursed from the Dependent <br />Care Flexible Spending Account, Marie's spendable income increases $81.78 for the month. <br /> <br />Effect of Before Tax Contributions on Your Other Benefits <br /> <br />Some of your other benefits, such as life insurance, is based on your before-tax salary. Your participation <br />in the FSAs does not reduce the amount of your pay that is used to calculate these benefits. Participating <br />in the FSA may reduce the amount of Social Security taxes you pay, which could reduce your future <br />Social Security benefits. <br /> <br />Alternate Tax-Savings Approaches <br /> <br />You may be eligible to take a reduction or tax credit on your income tax return for eligible health and/or <br />dependent care expenses. However. if you use the accounts to reimburse expenses, you give up the <br />opportunity to take an income tax deduction 0 those same expenses when you file your taxes. <br /> <br />5 <br />