FSA for Daycare

[Jb1210a]

Hello All,

I'm deciding to enroll in a FSA with my company this year and I have a few questions regarding the function of it. I understand its benefits and how it will save me money annually, but I'm concerned with the fact that I live paycheck to paycheck currently and realize that money this large coming out of my account will severely impact my ability to live. I've enrolled now and have 7 days to change the election if needed.

Is anyone able to give a good detailed overview of it and explain how it will impact my paycheck?

Thanks!

[elessar78]

Well, it's pre-tax so say you set aside 5% (or a specific dollar amount) and just subtract that from your gross salary.

Let's say you get paid biweekly $1,000 (nice round number). If your paycheck deductions (taxes, health care, etc.) amount to 25%, when you start doing this your deductions will be 30%. In the above scenario, your take home was $750 every two weeks, now it will only be $700 every two weeks.

Additionally, it reduces your taxable income. Before you were getting taxed on $1000 biweekly, now you're only getting taxed on $950. That's the theory.

In practice, when we did it—It was a lot more hassle than it was worth. You have to apply for reimbursement using forms or online. It's a small hassle, but if it's worth it to you. That's another thing, depending on how it's set up... you may have to pay first then they reimburse you. But now I think they have debit cards and it automatically will do it.

We had it set up where we had an FSA/HSA and it was just too much management to get our money back.

[Jb1210a]

That's what I'm hearing as well and it's making me change my mind about it. Unfortunately, I can't afford to lose that much out of my paycheck without it being prefunded. Plus, the amount coming out is more than what I am actually paying in daycare. I understand it's pretax and that it will amount to savings in the long-run, but if it's a huge hassle, and I'm living very thin, I don't know if it will be worth it for me. Before I signed up for this, I was taking home 1412 a pay-period and my new deductions would put me around 1232, that's a little too low for my expenses and bills. Fidelty's calculator says I will save 1400 in taxes, but I would have to adjust my lifestyle even more to be able to afford that change.

[elessar78]

I don't know if you work with an accountant for your taxes, we do, and I believe you can get your tax bill reduced for daycare costs. So in essence you still get the tax break and you don't have to do it up front.

$1400 in tax savings, equals $53.85 cents a paycheck. For me, no thanks.

Not that I can't use the extra $50 a paycheck, but I don't know all the ins and outs of the program and if I over-estimate what I set aside in the FSA, that money is gone then all my savings that I anticipated don't materialize. I dont' want to scare you off, if it's right for you, but in the end we had to eat a couple of hundred bucks because our day care situation changed (we changed sitters and it cost less).

[NetSkyBlue]

If you are spending this money anyway, then you will actually have more spendable money per check, due to the tax savings.

I don't understand this: Plus, the amount coming out is more than what I am actually paying in daycare.

Why did you elect to have more taken out than you know you will spend?

Do you typically get a large-ish tax refund? If so, adjust your withholding to be less (add a "1" on your W-4 instead of all 0's)

Right now you are getting (simplified here) $1432 minus $30 in taxes, minus $200 in childcare (which you are paying out yourself, not being withheld), leaving you with $1212 when all said and done.

Using an FSA, you will be getting $1432 minus $200 in childcare (withheld), but you get to keep your $30 in taxes, leaving you with $1232 to spend.

[Jb1210a]

I don't understand either, that's what the website is telling me, here's the run down.

I am a single father and I split daycare expenses every other week the cost is 175/week. I calculated that 175 at 26 weeks equaled out to 4550 annually. Which I entered into my declarations page. The site said that this would cost me 181.99 a pay period. That simply doesn't make sense to me.

[bjl584]

Originally Posted by Jb1210a

Hello All,

I'm deciding to enroll in a FSA with my company this year and I have a few questions regarding the function of it. I understand its benefits and how it will save me money annually, but I'm concerned with the fact that I live paycheck to paycheck currently and realize that money this large coming out of my account will severely impact my ability to live. I've enrolled now and have 7 days to change the election if needed.

Is anyone able to give a good detailed overview of it and explain how it will impact my paycheck?

Thanks!

FSA contributions are pretax (like a 401K), so it won't be a 1 to 1 ratio. In other words, if you elect to put in $50 per pay, then your pay isn't going to be $50 less than normal. You can probably figure 20 to 25% for taxes. That included federal, state, and local. So, if you put in $50, your pay would be around $37 less.

It's money that you are spending anyway, so it's better to take the tax savings on those expenses.

Just be aware that there is a time limit to use the money in your FSA. It's basically use it or lose it. So don't overfund it.

[Jb1210a]

I got clarification from the service and the turnaround on reimbursement would be through direct deposit and would be within 24-48 hours of submission. The associate with Fidelity wasn't able to clarify if it would be a prefunded account, or if I was reimbursed upon submission. Regardless, if the amount is 25% by going with a FSA, I'd be seeing roughly 43 dollars more in my check a pay period.

[NetSkyBlue]

Originally Posted by Jb1210a

I don't understand either, that's what the website is telling me, here's the run down.

I am a single father and I split daycare expenses every other week the cost is 175/week. I calculated that 175 at 26 weeks equaled out to 4550 annually. Which I entered into my declarations page. The site said that this would cost me 181.99 a pay period. That simply doesn't make sense to me.

Ok, you know you will be paying $4550 a year. How often are you paid a check where withholdings are taken out?

For example, I am paid bi-weekly, but withholdings are only taken out of 24 checks (two checks per year are "third paycheck of the month" checks, and my company does not withhold from those, except for taxes, of course.)

If your company is the same, you would have $189.58 withheld per paycheck. This is more than $175 per bi-weekly check because of those 4 weeks per year that you will owe 2 childcare payments, but not have anything withheld. That $350 has to be averaged in to the other 24 paychecks (at $14.58 extra per check).


Take $4550 and divide by the number of paychecks that will have withholdings taken out, and that's the amount that you need to elect to have taken out per paycheck.

[Jb1210a]

I am assuming it's 26 pay periods with withholding. The situation you described with how you get paid is something I have yet to experience as I haven't been here this long. In fact, next Friday is the first time I'll be getting paid three times in one month, so I should be able to tell you as soon as that Friday.