FAQ
What is a Medical Reimbursement Account?
The second type of employee reimbursement account covers medical expenses like co-payments and deductibles that employees' health, drug, dental and vision insurance does not cover. These are known as unreimbursed expenses.
The employee tax savings can be impressive. The following example is for a single employee who earns $20,000 per year and spends $800 per year on unreimbursable medical expenses.
| |
Without Medical Account |
With a Medical Account |
| Gross monthly salary |
$1,666.67 |
$1,666.67 |
| Insurance premiums and Dependent Reimbursement Account |
$0.00 |
$67.00 |
| Adjusted pay |
$1,666.67 |
$1,599.67 |
| Federal Income tax (15%) |
-$250.00 |
-$239.95 |
| Social Security n(7.65%) |
-$127.50 |
-$122.38 |
| Pay after taxes |
$1,289.17 |
$1,237.34 |
| Insurance premiums and Dependent care (after taxes) |
-$67.00 |
$0.00 |
| Take-home pay |
$1,222.17 |
$1,237.34 |
|
Without the pre-tax savings of a Medical Reimbursement Account, this employee's take-home pay drops to $1,222.17 per month after taxes and non-reimbursable expenses have been removed. If the individual pays for his or her expenses with pre-tax dollars through careful planning, the individual would enjoy an additional $182 per year in take-home pay.
It should be noted that this example is only meant to estimate the tax impact of an employee Medical Reimbursement Account. Each individual employee's personal financial situation and deduction status will differ, and the taxes will vary from those shown in this example.
Eligible expenses for this account include health insurance deductibles and co-payments, vision, dental, and hearing care and other unreimbursed medical costs. It should also be noted that certain items such as life insurance and some types of disability insurance premiums are not eligible for reimbursement under the Medical Reimbursement Account.
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