FSA Tax-Savings Calculator
Example: Annual FSA election: 3000 $ · Your marginal income tax rate: 22 % · FICA payroll tax rate: 7.65 %
| Taxes you save | $890 |
| Real after-tax cost | $2,111 |
| Effective discount | 29.65% |
Worked example
Elect $3,000 in a healthcare FSA in the 22% federal bracket. Because FSA contributions skip both income tax and the 7.65% FICA payroll tax, you save about $890 in taxes. That means $3,000 of medical spending actually costs you about $2,110 in take-home pay — an effective discount of roughly 30% on care you were going to pay for anyway.
Frequently asked questions
How is an FSA different from an HSA?
An FSA is offered through your employer, generally must be used within the plan year (with a small carryover or grace period if your plan allows), and does not require a high-deductible plan. An HSA requires an HDHP but rolls over forever and can be invested. Many people who do not qualify for an HSA still have access to an FSA.
What is the use-it-or-lose-it rule?
Money left in a healthcare FSA at the end of the plan year is generally forfeited. Plans may allow a limited carryover or a short grace period into the next year, but you should not over-elect. Estimate predictable costs — prescriptions, dental, vision, copays — and fund close to that.
Why does FICA matter here?
FSA contributions are exempt from Social Security and Medicare payroll taxes as well as income tax, which a 401(k) contribution is not. That extra 7.65% is why an FSA dollar is often more tax-efficient than a traditional retirement dollar for money you will spend on healthcare anyway.
What can I spend FSA money on?
Qualified medical expenses: copays, deductibles, prescriptions, dental and vision care, many over-the-counter items, and more. The IRS publishes the full list. Knowing what qualifies helps you elect an amount you will actually use.
Is there a contribution limit?
Yes. The IRS sets an annual healthcare FSA limit that is adjusted for inflation each year. Check the current year's limit before electing, especially if you and a spouse each have access to an FSA.