OPM has sent a message to agencies prodding them to encourage their employees to take out flexible spending accounts, noting that there is a financial benefit to agency management as well as to the individuals.
In FSAs, employees can set aside up to $5,000 per year for certain dependent-care costs and/or up to $2,500 a year for certain health care costs not covered by insurance. Because the accounts are funded with pre-tax salary money, it reduces the Social Security tax burden for most employees who pay into that system—those covered by either FERS or CSRS Offset. The exception is employees who earn above the annual maximum level from which Social Security taxes are taken
OPM wrote that “when an employee lowers their taxable income by contributing to an FSA, your agency experiences a corresponding reduction in its [Social Security] taxes. An employee contributing $250 to an FSA will generate a FICA tax savings of $19 for your agency… The more money your employees put into their FSAs the more savings they will see on their personal taxes and your agency will see on its payroll taxes.”
“Your agency and your employees can’t afford not to participate in FSAFEDS,” OPM told benefits officers.
Agencies do pay account maintenance fees on behalf of their employees, but they are well below the value in reduced employer payroll taxes—$1.25 per month for each employee with a health FSA and $1 per month for each employee with a dependent care FSA.
Employees can enroll in one or both types of FSA accounts during the benefits open season that runs November 10-December 8. Unlike health insurance and vision-dental insurance benefits, a new enrollment is required each year for the following year. About 330,000 employees have FSA accounts in 2014.