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MEMORANDUM <br /> DATE: November 28, 1990 <br /> TO: Thomas D. Burt, City Manager <br /> FROM: Roger Larson, Finance Director <br /> ITEM: FLEXIBLE SPENDING BENEFIT ACCOUNT <br /> Employee benefit programs, like lmost anything else,are becoming extremely expensive for <br /> employees and employers. Ir�G neral, statistics show the cost of employee benefits has <br /> almost double the last 20 years. The rising cost of Health Insurance and increases in Social <br /> Security and Medicare taxes has impacted all employers. <br /> To offset some of these increases, many employers have implemented flexible spending <br /> accounts to reduce their matching FICA tax contributions. These plans take advantage of <br /> Section 125 of the Internal Revenue Tax Code and are designed to provide participants the <br /> ability to increasing their spendable income. <br /> The savings to employers is that these "Cafeteria Plans" allows employees to pay for health <br /> insurance premiums with pre-tax dollars. This reduces the amount of FICA taxes which an <br /> employer is responsible to pay. <br /> How does it work? (Assume an Employee of St. Anthony made $20,000 Yr and paid <br /> $100.00 per month out-of-pocket expenses for health insurance) <br /> Without Plan With Plan <br /> Gross income $ 20,000 $ 20,000 <br /> Taxable income reduction - 0 - 1.200 <br /> Taxable income $ 20,000 $ 18,800 <br /> Social Security Tax $ 1,530 $ 1,438 <br /> Federal Income Tax $ 2,850 $ 2,670 <br /> Health insurance deduction 1,200 $ - 0 - <br /> Spendable Income $ 14,420 $ 149692 <br /> Increase in Employee <br /> • spendable income = $ 272 <br /> Employer FICA tax savings = $ 92 <br />