Suppose my wife and I both can claim FSA but the max is 5k. And suppose we both have two dependents on our w-4. The big difference is lets say I get paid 100k and she gets 50k. Who is the better candidate to claim the FSA?

  • 1
    what do you mean "claim"? Are you filing jointly? In what state? That's a question to your tax advisor, not a "suppose" question on a forum. – littleadv May 11 '12 at 22:39
  • The question is valid, the syntax is confusing. – JoeTaxpayer May 12 '12 at 0:48

Your wife.

You are very close to the social security wage base limit, $110,100 in 2012. FSA is withheld pre-FICA, so in future years when you are over the limit, you may still hit the maximum withholdings. Your wife, at $50K will save both your marginal rate (25%) as well as the normal 6.2% for social security withholding.

Edit - to add a clear example - At $50K, if your wife takes out $5K for FSA, the $5K avoids FICA withholding. Same for you at $10K, but, suppose your income were $115K, if you withheld $5K for FICA, you still hit the $110K limit and pay the full maximum for social security. Until you are over the limit, the point is moot.

  • Dilip - thanks, that issue is a real oddity that's overlooked. i.e. for most, FSA is a savings of marginal rate + 6.2% – JoeTaxpayer May 12 '12 at 12:37

If you are filing jointly, it doesn't make a difference. In your example it will be 5K out of 150K.

It could make a difference in state taxes, because some will allow to file separately on your state taxes, while filing jointly on the federal forms.

Ignoring taxes it could make sense to link it person paying for the insurance policy. Many insurance companies will give you a credit card to pay for co-pays, and prescriptions. If you go out of network the credit card can even be used to pay the part that is not covered by the insurance. I would think having them linked together will make the transactions smoother.

  • That's not necessarily correct. In community law states, earned income is divided equally, so filing jointly or separately doesn't matter. The question as asked cannot be properly answered, and information you're giving may be misleading and incorrect. – littleadv May 12 '12 at 0:34
  • +1 - there's logistical (as opposed to 'logical') value in having the FSA with the same person who holds the primary insurance. That's actually how we do it here. – JoeTaxpayer May 12 '12 at 0:50

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