![]() Our analysis focused on active-duty personnel and sought to evaluate the benefits and costs to service members of FSAs for dependent care and health care and the costs and savings to DoD. The Office of the Secretary of Defense (OSD) asked the RAND National Defense Research Institute to provide analytic support for its report to Congress, including an implementation plan should FSA options be implemented by DoD. Thus, a priori, it is not possible to predict whether FSAs would represent a net benefit to service members and their families in terms of reduced tax liabilities or a net reduction in costs to DoD. Department of Defense (DoD), FSAs reduce Federal Income Contribution Act (FICA) taxes that consist of both Social Security and Medicare taxes but impart a cost in the form of administration costs and implementation or start-up costs. From the standpoint of the employer, such as the U.S. tax code, potentially reducing or even eliminating the potential tax savings to individuals with an FSA. FSAs interact with other tax incentives in the U.S. As detailed by the directive, the report should include an assessment of the tax incentives when using FSA options and the financial advantages or disadvantages to service members and their families and should include identification of any legislative or administrative barriers to implementing these options.Ĭontributions to either a health care FSA (HCFSA) and/or dependent care FSA (DCFSA) reduces the amount of income subject to income and payroll taxes, thereby reducing the individual's tax liability. House of Representatives Report 116-617, 2020). ![]() The House Armed Services Committee Report accompanying the National Defense Authorization Act for fiscal year 2021 directed the Secretary of Defense to report on the feasibility of implementing flexible account options that allow pre-tax payment of dependent care expenses, health and dental insurance premiums, and out-of-pocket health care expenses for service members and their families ( U.S. Unlike many large employers, including the federal government, the military does not offer flexible spending account (FSA) options to members of the armed services and their families. ![]() They also identified legislative or administrative barriers to these options. Department of Defense (DoD), and present an implementation plan should FSA options be implemented by DoD. The authors evaluate the benefits and costs of FSA options to active members and the U.S. This study presents an analysis-requested by the Office of the Secretary of Defense as input for Congress-on the implications of FSA options for active-duty service members and their families that would allow pre-tax payment of dependent care expenses, insurance premiums, and out-of-pocket medical expenses. For example, in the case of health care, most members would have few or no eligible out-of-pocket medical care costs associated with TRICARE. For service members to take advantage of an FSA, they must have eligible dependent care and medical expenses for themselves or their family members. tax code, potentially reducing or even eliminating the potential tax savings to individuals participating in an FSA. Contributions to either a health care FSA (HCFSA) and/or dependent care FSA (DCFSA) reduce the amount of income subject to income and payroll taxes, thereby reducing the individual's tax liability. military does not offer flexible spending account (FSA) options to members of the armed services and their families.
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