Is there a formula for showing the employer what they have saved to date?

[Guest Kristine]

My supervisor wants me to compile a report showing employers tax savings for their FSA plans. She would like this to be based on total elections and contributions. Any ideas???

Anything I look at on the web are just exapmles of what an employer would save if they offered an FSA Plan.

[LRDG]

Employers typically save on their matching FICA payroll tax, 7.65%. Except California with does not recognize Sec. 125 salary reductions for purposes of their state MediCal(?) portion of FICA, 1.65%(?). If you have clients in CA, you'll have to research state regs.

Premiums for Workers Comp is also administered state by state. Most states with WC payroll tax do not want to reduce funding and don't recognize Sec. 125 salary reduction agreements.

FUTA, Federal Unemployment Tax Act, recognizes Sec. 125 salary reductions. Because FUTA tax applies to the first $7k(?) of payroll, it's usually not a consideration for purposers of the employer tax savings calculation.

SUTA, State Unemployment Tax Act, is determined by individual state, and as is the case with FUTA, the dollar cap on payroll is so low it's usually not a factor in the tax savings calculation.

Municipal govt's may impose payroll based taxes as well.

NJ and one other state that i can't recall, were hold outs for deciding to recognize salary reduction agreements, both have since decided.

Why only FSAs? What about pre-tax premiums when calculating employer tax savings?

Is there a contact in your P/R dept., (or your client's)? how up to speed they are on state regs?

Not sure about 'total elections and contributions'?

Your supervisor gives you the easy stuff

[leevena]

There are two pieces to this request, the employer savings and the employee savings. The employer savings is relatively simple. The payroll records will give you the total amount of dollars run through the fsa plan(s). Now apply the percentages that are applicable to your client, just as LRDG speaks about in his/her response. And as LRDG says, why not do it for all dollars, not just fsa.

If your supervisor wants savings on the employee side, that is next to impossible. You can assume that the average employee will save 20-25%, but that is just an assumption. To calculate this you would need to know each employees total dollars and then their actual tax rates. The employer does not have access to the employees final tax rate.

[david rigby]

Be careful about applying the 7.65% FICA savings rate. It will be only 1.45% for some EEs.

[GBurns]

Which EEs have only a 1.45% rate?

The devil is in the details.

[david rigby]

There are 2 SS tax rates. 6.2% on wages up to the SSTWB, and 1.45% on all wages without limit

(oversimplified).

[GBurns]

Yes, but ALL EEs pay 7.65% up to the SSTWB (wage base limit), which is about $94,200 for 2006, BEFORE it drops to 1.45%.

So at the start of the calculation ALL EEs are included at 7.65% then a few will drop down to 1.45% when they reach the wage limit.

[jsb]

Good point by GBurns. The savings rate will only be 1.45% on ANY contribution made by an employee who exceeds the limit at the end of the year.

In terms of savings, however, be sure to include an offset for amounts paid under your medical FSA that will never be recovered through payroll deduction. Or, you might include discussion of plan forfeitures (which could already include the extra medical FSA payouts) which generally turn out to be a plan revenue item that offsets internal administration costs.

[LRDG]

consider foot notes to explain unknown factors, mid-year election changes based on family status changes, at what pont during the plan year the FICA income limit will be met, terminations, cobra elections, newly hired-mid year participants. new hire elections potentially off-set terminations. You can only base the report on what is known based on elections as of the day the report is prepared.

[david rigby]

So at the start of the calculation ALL EEs are included at 7.65% then a few will drop down to 1.45% when they reach the wage limit.

Sure, you can use 7.65% even for those who will be well over the SS wage base. But you might find it difficult to explain why the savings on $2000 is $153 on March 1, but only $29 on December 31.

[Guest Pensions in Paradise]

pax - how many plans allow participants to contribute over $94,200?

[LRDG]

Pensions, i don't think $94,200 is the Flex plan contribution. It's the wage/salary at which an employee becomes exempt from a portion of FICA payroll tax withholdings. FICA has two components, 6.2% FICA, 1.45% for Medicare(?) funding. $94,200 is the wage limit for maximum FICA contributions, wages above $94,200 are FICA exempt, on the 6.42% portion of FICA. There is no wage exemption on the 1.45% Medicare portion of FICA. (assuming $94,200 is accurate).

Since it's an annual amount, assuming there's no salary increase, the 7.65% will provide an accurate ER tax savings projection for the plan year. If there's a wage/salary increase, the amount and date of the increase within the plan year will determine the degree to which ER tax savings are reduced. The 1.45% Medicare portion of FICA not subject to a wage/salary exemption will continue.

ER tax savings reports are 'projections' based on current elections and salaries. If the employer can predict with a degree of accuracy the effects of salary increases subject to the FICA exemption, employment terminations, mid-year family status election changes, new hire mid-year participat elections, only then will an administrator or anyone else be in a position to provide an exact calculation of tax savings.

Unless the participating EE population is prodominately highly paid professionals, with a small, lower paid support staff, the FICA wage exemption shouldn't have a substantial impact on the projected ER tax savings report. A prodominately professional employee population with few lower paid support staff has bigger dragons to slay. non-discrimination testing comes to mind.