The University offers a benefit that can reduce the amount of taxes faculty and staff members pay by hundreds, even thousands, of dollars every year. It’s called a Flexible Spending Account (FSA).
What’s an FSA? An FSA is a government program that allows faculty and staff members to set aside money for specific expenses (dependent care and health care are the two categories) before the tax on their earnings is calculated. This means enrollees in an FSA have their taxable income reduced by the amount of their annual account contribution.
Here’s a simplified example: If a person makes $30,000 and chooses to place $1,000 in a health care FSA, he or she only pays taxes on $29,000. In this example, the estimated tax without the FSA ($30,000 x 25 percent estimated tax rate) is $7,500. The estimated tax with the FSA ($29,000 x 25 percent) is $7,250. The person realizes a savings of $250.
How the accounts work: Managing an FSA is simple. Each year, faculty and staff may enroll and set aside an amount they reasonably predict will be needed for health care and/or work-related dependent care (these are two separate accounts). The amount estimated is contributed on a pretax basis into the appropriate FSA via payroll deduction with equal payments according to pay dates (12 for those paid monthly, 24 for those paid bi-weekly—two paychecks won’t have a deduction).
Then, as faculty and staff members incur eligible expenses, they simply submit the required documentation to the University’s external claims processor, SHPS, and they will receive reimbursement in about 10 days.
Faculty and staff members must enroll every year; this benefit does not renew automatically.
How much should a person contribute? Determining the value an FSA has for each individual will take a little bit of work but can result in substantial savings. First, faculty and staff members should look at known expenses. If a person has childcare or elder care expenses, a dependent care FSA is a possibility. A health care FSA is an option if a person has any or all of the following: glasses and/or contacts, laser eye surgery, a child who needs braces, significant personal dental work, considerable amount of out-of-pocket medical expense.
The site http://www.myshps.net offers a complete list of eligible expenses and online calculators to see how much an FSA can save a participant.
The process is discreet and as quick as three days using electronic fund transfer. The big consideration is that an employee must use the funds in his or her FSA for eligible expenses incurred within the calendar year or lose the money. Faculty and staff members are encouraged to estimate wisely by identifying and contributing only for eligible expenses.
Faculty or staff members with questions about FSAs can contact SHPS or the HR/Payroll Service Center at (734) 615-2000.
To enroll in an FSA during Open Enrollment, Oct. 1-24, faculty and staff can use the form in their Open Enrollment books.
For more information, visit http://www.umich.edu/~benefits/plans/reimburse . For a complete list of eligible expenses and online FSA calculators, visit http://www.myshps.net.
