FSA Tax Savings Calculator
How this FSA tax savings calculator works
A health Flexible Spending Account (FSA) lets many employees pay eligible medical expenses with pre-tax payroll deductions. That means part of your pay is redirected into the FSA before certain taxes are calculated. This calculator estimates how much you may save in taxes based on (1) your annual FSA election and (2) your marginal federal and state income tax rates.
What you’ll get from the results:
- Estimated annual tax savings from making the contribution pre-tax
- Effective discount on eligible expenses (your combined tax rate, as a percent)
- After-tax cost of funding the same expenses without an FSA
Inputs: what to enter (and what they mean)
- Annual gross income: used for context only on many FSA pages; this calculator’s savings math is primarily driven by the contribution amount and tax rates. (Your employer’s plan rules and the Social Security wage base can matter for payroll tax, discussed below.)
- Annual FSA contribution: your elected amount for the plan year that you expect to spend on eligible expenses.
- Federal tax rate (%): your marginal federal income tax rate (not your average/effective rate).
- State tax rate (%): your marginal state income tax rate. If you also pay local income tax, you can optionally fold it into this number.
Formulas used
The basic idea is that each pre-tax dollar avoids a slice of tax. If your combined marginal income tax rate is t, then each $1 contributed reduces taxes by about t dollars.
Combined marginal rate (income taxes only): t = tf + ts
Estimated tax savings: S = C × t
After-tax dollars needed to pay the same expense without an FSA: AT = C − S = C × (1 − t)
Effective discount rate: D = S / C = t
MathML version of the savings formula:
Payroll/FICA note: Many (not all) FSAs also reduce employee FICA (Social Security + Medicare). That would add an extra term, often 7.65% for employees under the Social Security wage base. This page’s form does not collect a payroll tax rate, so the calculator results focus on income tax savings only. See “Limitations & assumptions” for details.
How to interpret the results
- Tax savings is the estimated reduction in income tax withholding attributable to the pre-tax contribution.
- Effective discount tells you the “coupon rate” you’re effectively getting on eligible expenses. For example, a 27% combined marginal rate implies a 27% discount.
- After-tax cost answers: “If I didn’t have an FSA, how much of my take-home pay would I need to give up to pay the same medical bills?”
Use these numbers as planning estimates. Your actual benefit depends on your payroll setup, eligibility, the timing of deductions, and whether your state taxes FSA contributions differently.
Worked example
Assume you elect $3,000 for the year, your marginal federal rate is 22%, and your marginal state rate is 5%.
- Combined marginal income tax rate: 22% + 5% = 27%
- Estimated tax savings: $3,000 × 0.27 = $810
- After-tax cost of $3,000 of expenses without an FSA: $3,000 − $810 = $2,190
Interpretation: if you were going to spend $3,000 on eligible care anyway, routing it through an FSA is like getting an estimated 27% discount via lower taxes.
FSA vs paying out of pocket (quick comparison)
| Scenario | What you pay for $C of eligible expenses | Why |
|---|---|---|
| Pay out of pocket (after-tax) | $C | You fund expenses with wages after income taxes |
| Use an FSA (pre-tax) | $C × (1 − t) | Part of wages bypasses income tax before you spend it |
| Estimated benefit | $C × t | Tax reduction from shifting wages pre-tax |
Contribution limits & “use-it-or-lose-it” planning
The IRS sets an annual cap for health FSA salary reduction contributions (employers can set a lower cap). Plans may also offer either a carryover (up to an IRS-set amount) or a grace period—generally not both. Because unused funds can be forfeited, it’s usually best to elect an amount you’re highly confident you will spend on eligible expenses.
If you want a more conservative estimate, run the calculator using the amount you are confident you’ll spend (not the maximum you could contribute).
Limitations & assumptions (important)
- Marginal rates: This calculator assumes the federal and state inputs are marginal rates that apply to the last dollars of income. Using effective/average rates can understate or overstate savings.
- No payroll tax included in the math: Although FSAs commonly reduce employee FICA taxes, this form does not include a payroll tax field. Results therefore estimate income tax savings only. Your true savings may be higher if FICA is avoided, or different if your situation is above the Social Security wage base or subject to additional Medicare tax.
- State/local differences: Some states and localities have special rules. If you pay local income tax and want it included, you may fold it into the “state tax rate” input.
- Eligibility and substantiation: Savings only apply if you use the FSA for qualified expenses under your plan’s rules and deadlines.
- Plan features: Carryover/grace-period rules, mid-year election changes, and forfeiture provisions can materially change the real-world value of an FSA election.
- Not tax advice: This is an educational estimate. For personal guidance, consult your plan administrator or a tax professional.