The Tax- Free Advantage

You will pay your share of the cost of family medical coverage and for dental coverage with pre-tax dollars—money that is withheld from your paycheck before federal, state and social security taxes are taken out. Your contributions (if any) to the Reimbursement Account Program are also made on a tax-free basis.

Here is an example to show how this feature can help you save on taxes. Let us assume you enroll your family in PHS’ Point of Service Medical Plan and Aetna’s Advantage Plus Dental Plan. Let us also assume you contribute $1,000 to the Reimbursement Account Program to pay for unreimbursed health care and dependent care expenses. Your total yearly contributions are $8,494.00; $6,918.00 for family medical coverage and $576.00 for dental coverage plus $1,000 in reimbursement account contributions. (For this example, we round these figures to the nearer dollar). Let us assume your yearly pay is $30,000 and you are in the 15% tax bracket.

	Tax-Free	After-Tax
Annual pay	$30,000	$30,000
Total Yearly Contributions	8,494	0
Taxable income	21,506	30,000
Federal income tax	3,226	4,500
Social security tax	1,645	2,295
After-tax expenses	0	8,494
Take-home pay	16,635	14,711
Tax Exempt Savings	$1,924

If state taxes were included in this example, your tax savings would be even greater.

Copyright © 1998 Pace University
Last updated on 03/30/00