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.
 With the increasing costs
of medical insurance and the limitations in the coverage, you need a way
to stretch your non-reimbursed medical expenses. If
your employer offers a Flex or Cafeteria plan, you may be able to save
thousands of dollars on those medical needs.
A cafeteria plan allows
an employee to select from a number of predetermined options and choose
where his or her benefit dollars will be spent. The plan can provide a
number of insurance selections, including medical, accident, disability,
vision, dental and group term life insurance. It can
reimburse actual medical expenses. It can pay children’s day care
expenses. And it does these things, through payroll withholding, with
pre-tax dollars.
The total amount someone
can save increases directly with the rate at which the person pays federal
tax. The savings are further amplified when you consider the impact of
another type of benefit, medical expenses, which may be difficult to
deduct on an individual’s tax return. The following table uses the 1998
tax rates to illustrate the potential savings of paying for your
refractive surgery or laser vision correction via a pretax salary
reduction. The example is of a married couple who have two children
and file a joint return. To arrive at the amount of taxable income,
the
family unit is assumed to be entitled to $10,800 of personal exemptions
($2,700x4) and a standard deduction of $7,100. (Please note that any
changes in the tax laws could affect the accuracy of these estimates.)
The example assumes that the taxpayers are using the standard deduction
and not itemizing.
|
|
W/O Plan |
With Plan |
|
|
|
|
Income (2 persons) |
$65,000 |
$65,000 |
|
Pretax
Medical Expenses |
$0 |
$2,000 |
|
|
|
|
Adjusted Gross |
$65,000 |
$63,000 |
|
|
|
|
Taxable income |
$47,100 |
$45,100 |
|
|
|
|
Taxes: |
|
|
|
Federal Income Tax |
$7,065 |
$6,765 |
|
Minnesota Income Tax |
$ 2,826 |
$2,706 |
|
FICA (7.65% in 1998) |
$4,973 |
$4,820 |
|
Total Taxes |
$1 4,864 |
$14,291 |
|
After Tax |
|
|
|
Medical Expenses |
$ 2,000 |
$0 |
|
|
|
|
Salary
minus Taxes and Medical Expenses |
$48,136 |
$48,709 |
|
|
|
|
Advantage of using a Flex / Cafeteria Plan |
|
$ 573.00 |
By authorizing pretax
payments for medical and dental expenses, you can reduce your taxable
income, which means that less of your pay is subject to federal and state
income taxes. In the example above, participation in a Flex / Cafeteria Plan
increased take-home pay by $573.00.
Twin
Cities LASIK recommends that you seek
professional tax advice prior to committing to a Cafeteria / Flex Plan.
The above table is simply for reference purposes.
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