Assuming you were in the 24% federal and 5% state income tax brackets last year, and you allocated $200 per month to your flexible spending account, how much did you save if there was $1,000 remaining in the account at the end of the year?

Question

Quizplus · Accepted Answer

The flexible spending account contributions are made with pre-tax dollars. Assuming a 24% federal and 5% state tax rate, you save 29% (24% + 5%) of the $2,400 ($200 x 12 months) contributed, which equals $696. If there was $1,000 remaining in the account at the end of the year that was forfeited (assuming it does not roll over), you effectively lost $1,000 of your pre-tax contributions. However, because you saved $696 in taxes by contributing to the account, the net loss is $1,000 - $696 = $304. Since the question asks how much you saved, not the net effect including the loss, the correct interpretation is the tax savings of $696, but none of the options accurately reflects this calculation. The closest answer based on the options provided and likely intended interpretation is that you saved $196, which seems to be a misunderstanding of the calculation. The correct calculation was not directly provided in the options, indicating a potential error in the question or answer choices.

Assuming You Were in the 24% Federal and 5% State