MMC Benefits Handbook
Taxes
Do I contribute to my spending accounts with before-tax or after-tax dollars?
You can only contribute to your Health Care Flexible Spending or Limited Purpose Heath Care Flexible Spending Accounts with before-tax dollars. This means that the money is deducted from your pay before federal, Social Security and most state and local income taxes are withheld.
Note: Your before-tax contributions cease while you are on unpaid leave. If you return to active employment in the same calendar year, your before-tax contributions will resume. The amount of your before-tax contributions will be recalculated for the remainder of the year to "catch-up" for your missed contributions while on unpaid leave. The balance of your annual election will be divided by your remaining pay dates, spreading the balance over the rest of your paychecks through the end of the year. This will increase your per pay period contribution upon return from unpaid leave.
By contributing on a before-tax basis, you reduce your taxable pay, and as a result, you lower the amount of taxes you pay.
What effect does contributing on a before-tax basis have on my benefits?
None. Your annual base salary will be used to calculate salary-related benefits.
What effect does contributing on a before-tax basis have on my paycheck?
Contributing on a before-tax basis means that the amount you pay toward your the Health Care Flexible Spending and Limited Purpose Heath Care Flexible Spending Accounts comes out of your pay before federal, and in most cases, state and local taxes are withheld, so you are paying taxes on a lower amount of salary. Your take-home pay is higher than it would be if you contributed on an after-tax basis.
What effect does contributing on a before-tax basis have on my Social Security benefit?
Your Social Security benefits may be slightly reduced because you pay for coverage on a before-tax basis. This is because your Social Security is based on your taxable pay (up to a specified annual maximum amount of earnings), and your taxable pay is reduced by the amount you contribute to your Health Care Flexible Spending and Limited Purpose Heath Care Flexible Spending Accounts.
What effect does contributing on a before-tax basis have on my W–2?
Your contributions will not be included in your taxable gross earnings on your W-2 statement. This reduces your taxable pay and as a result, lowers the amount of taxes you pay.
Can I claim my reimbursed expenses as a deduction on my tax return?
No. If you are reimbursed for an eligible expense from your Health Care Flexible Spending or Limited Purpose Heath Care Flexible Spending Accounts you cannot claim it as a deduction on your federal income tax return.