In this video, I explain the flexible spending Accounts FSA as covered on the CPA TCP Exam.
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A Flexible Spending Account (FSA) is a special account that allows employees to set aside money, before taxes, to cover certain qualified expenses. These expenses can be medical-related or for dependent care. Let's break down how FSAs work:
Funding the Account: Employees can choose to have a part of their salary, up to a maximum of $3,050 (as of 2023), diverted into an FSA. This is done through an agreement with the employer to reduce the employee's salary by the chosen amount.
Employer Contribution: In some cases, if certain conditions are met, an employer can also make contributions to an employee's FSA.
Tax Benefits:
Exclusion from Gross Income: The money contributed to the FSA is not included in your gross income. This means it's taken from your salary before taxes are applied.
No Employment or Federal Income Taxes: The contributions are exempt from employment taxes (like Social Security and Medicare) and federal income taxes.
Tax-Free Reimbursements: If the money from the FSA is used to pay for qualified expenses, these reimbursements are not taxed.
In essence, an FSA is a financial tool that helps employees save money on taxes by using pre-tax dollars to pay for specific types of expenses.
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26 авг 2024
