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How the TSB Saves Money

Suppose an employee and his/her spouse require prescription drugs to treat high cholesterol, arthritis and depression. To maximize their savings, the couple requests that their prescriptions be filled with generic medications. Even with the cost savings of purchasing generic drugs, the couple’s co-pay/co-insurance for these drugs totals $480 per year.

The Tax Saver Benefit Plan can further maximize the couple’s savings. Normally, they would pay for their co-pays/co-insurance (which are out-of-pocket expenses) with after-tax income. However, using TSB, they would pay their prescription co-pays/co-insurance, and then receive reimbursement with tax-free income contributed from the employee’s paycheck.

Contributing pretax income to a TSB account is like getting a further discount on the medications since they don’t have to earn as much money to pay for them. The money contributed to TSB reimbursement accounts by automatic salary reduction is not subject to federal, state, local, or FICA taxes. The amount of the savings depends on income, marital filing status, withholding allowances, and resulting tax rate. For example, a married employee with an annual salary of $34,000 with no allowances and no other deductions may save approximately 25.78 percent in taxes.

The following is an example only and is based on an annual salary of $34,000. Tax savings will depend on one’s individual tax rate. Tax savings really do add up.

Example:

Not using TSB
Using TSB
Contribution to reimbursement account
$0
$480
Cost of eyeglasses
$480
$480
Income taxes paid to take home $480
$167
$ 0
Amount you must earn to pay co-pays/co-insurance
$647
$480
Amount saved
$0
$167