Did you know that flexible spending accounts (FSAs) can save employers money? Employers who offer FSAs do not pay Social Security and Medicare (FICA) taxes on their non-minister employees' contributions to these accounts. That’s because FSAs are funded through pretax payroll deductions.
For example, if 10 employees each contribute $2,000 to an FSA from January 1, 2019, to December 31, 2019, the employer would save $1,530 in taxes for 2019.*
Employees save, too, since their FSA elections are deducted from their pay before FICA or federal income taxes are taken out, lowering their taxable income. And in most states, state income taxes don’t apply.
*The current employer portion of Social Security and Medicare taxes is 7.65 percent on taxable wages. This example is for illustration purposes only and would not apply to ministers who are self-employed for Social Security purposes (paying SECA instead of FICA).