Flexible spending account tax savings?

Question

I live in Texas and signed up for a Flexible Spending day care account for the $5000 maximum. I know that the account can save you money in taxes but what kind of savings can I expect on the $5000?

Answer 1

Whatever your tax rate is times $5000.  Now, that is how much lower your total tax bill will be.  It will not show up in your refund because proportionately less tax will be withheld during the year.  You are still saving the money, however.

Answer 2

It depends entirely on your incremental tax rate.  The flex spending account pays day care using pretax dollars.  What that means is instead of taxing your income and using what's left to pay for day care, your account pays those expenses before the income is taxed.  Therefore the dollars that would have been paid to Uncle Sam as tax are instead used to pay your expenses.  Clearly then, the savings from using pretax dollars is limited to the amount of tax you would have paid if you didn't have the flex account.  If you make an income where you don't pay taxes in a year, then flex saves you nothing.  If you make $200,000 and pay a 33% rate, then you are saving 33% of your $5000.