Save on Taxes
How does a Health Spending Account reduce personal taxes?
A Health Spending Account is a non-taxable benefit. When you pay for prescription bills without a Health Spending Account, you pay with after-tax money. By having your prescription bills reimbursed by your corporation, you pay with pre-taxed money and will not be taxed for this benefit.
For example, if you paid for your family’s prescription bill of $1,000, you would pay with after-tax dollars. Let’s say you are in the 30% tax bracket; your $1,000 would have meant that you had paid $428.57 in taxes. You would have withdrawn $1,428.57 from your corporation to get $1,000 for your prescription bill, plus taxes.
How does a Health Spending Account reduce corporate taxes?
If your corporation had our Health Spending Account and reimbursed you $1,000 for those prescriptions, it would only pay $1,080 not the $1,428.57.
(The $80 is the 8% Health Spending Account administration fee for reviewing, processing and reimbursing the bill.) You can now claim it as a business expense, thus reducing your corporate taxable income, saving you corporation taxes.
You would save $348.57 ($1,428.57 less $1,080)
