The Section 125 Cafeteria Plan calculator will help you to figure out how setting up Flexible Spending Accounts through your employer can help you pay less in taxes and increase your net take home pay. This calculator can also help you to see how making changes to your existing deductions can affect your tax obligations and your take home pay. This calculator is updated to use the new withholding schedules each year.
Section 125 Cafeteria Plan
Section 125 Cafeteria Plan Overview
Many employers offer their employees the opportunity to participate in Flexible Spending Accounts, technically known as Section 125 Cafeteria Plans. This accounts allow workers to set aside some of their pre-tax earnings to pay for things like medical expenses, child care, health insurance premiums and costs related to adopting a child.
Because these things aren’t generally tax-deductible, setting up a Flexible Spending Account (FSA) gives workers an indirect way to deduct those costs from their earnings and reduce their tax bill. Funds placed in an FSA, up to certain allowed limits, are counted as pre-tax deductions and reduce your taxable income.
You can choose which types of accounts you wish to use from among the ones available, which is why they are called “cafeteria plans.”
Not everyone can use an FSA. They’ve only available to employees working for a business that offers a Section 125 Cafeteria Plan. They are not available to self-employed individuals, business owners or partners in a business (with the possible exception of certain limited partnerships).
You should plan carefully before setting up an FSA, because you want to be sure you use all the money you put in it every year. If you don’t, you could lose it. The law allows you to roll over up to $500 in unused health care funds (not including insurance) to the following year, but anything above that reverts to your employer.
For example, let’s say you put $2,500 month into your medical FSA, but only ran up $1,750 in allowable medical expenses by the end of the year. You could roll $500 into your account for the following year, but would lose $250 to your employer. With the tax savings, you might still come out ahead, but it’s important to plan carefully.
Using the Section 125 Cafeteria Plan Calculator
Enter your information in the boxes indicated. If you have questions about any particular box, click on the description for more information, including updated maximum FSA contributions.
Note that your gross pay and your FSA expenses must be for the pay period you select as the second entry in the calculator. For example, if you select a “weekly” pay period, enter the amount withheld for your FSAs each week, not the total for the year.
For example, if you put $2,400 into your medical care FSA each year and are paid on a monthly basis, you would enter $200 as your FSA medical care expenses, because that’s the amount taken out of each paycheck.
Choosing the “annual” option can simplify matters, even if you’re paid on a weekly or monthly basis, as you can simply enter the total withholdings you want to make for the year for each FSA. If you do that, however, enter “0” for the amount you have been paid to date or the calculator will add that amount onto your annual earnings, as it will assume you receive those at year’s end.
If you choose the “annual” pay period option, the calculator assumes you receive all your pay at the end of the year.
Running the calculation will show you how much more available income (tax savings) you will have per pay period. Use the “View report” button to see a more detailed financial breakdown of revenues, costs and expenses for the year.