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February 19, 2002
Employees Ignorant of Some Benefits
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d corporate belt-tightening, many new employees have been accepting salaries that are lower than they might have hoped. But consultants tell The New York Times that they may be able to make up some of the difference by taking better advantage of their benefit packages.

"People have to do some digging to find out what benefits are available to them, but the savings can be significant," said Richard Koski, a principal in Secaucus, N.J., for Buck Consultants, the human-resources consulting firm based in New York.

Many employees, despite familiarity with their company's health care plan and retirement savings programs, don't realize they can avail themselves of such other benefits as flexible spending accounts, transportation reimbursement, and even adoption assistance programs. Some have been beefed up for 2002 by the tax law passed last year.

The Times notes that many of the employer-sponsored programs allow employees to pay for designated expenses with dollars that have not been subject to either federal income tax or the FICA tax for Medicare and Social Security. In contrast, 401(k) contributions, on which income tax is deferred, do not get the break on FICA taxes.

"If you are in the 27 percent tax bracket, and you are not using pretax dollars, you would need to earn at least $1.37 to purchase one dollar's worth of benefits," said Martha Priddy Patterson, a director at Deloitte & Touche in Washington and author of "The New Working Woman's Guide to Retirement Planning."

Because this money is usually exempt from state and local taxes, as well, the savings can be considerable.

Employers often spare benefits like FSAs from cost-cutting, the Times notes. "Even though we're in a bad time, companies still use these benefits to keep the people that they want to keep," Koski said.

There are benefits here for employers as well, according to the Times. They are not required to make FICA contributions on untaxed benefits. The federal government foots the bill, losing out on $240 billion a year in taxes on the entire range of employee benefits, including health care and retirement benefits, according to the Employee Benefits Research Institute, a nonprofit organization in Washington.

With dependent-care F.S.A.'s, employees must decide before the beginning of the year how much they want to set aside from their salaries before taxes. By law, the plans are "use it or lose it" - money that employees put aside but don't spend is forfeited.

The maximum allowed is $5,000, which can be used for various expenses related to child care, including kindergarten. Employees who qualify for the federal child care tax credit need to choose between this credit and dependent-care FSAs.

By avoiding both federal income and the 7.65 percent FICA tax, the Times reports, employees who take advantage of FSAs make their money go much further than colleagues who do not. An employee in the 27 percent income tax bracket would have to earn a bit over $3,000 to pay for the same expenses directly as a colleague who put $2,000 in an FSA.

To read the New York Times article, click here. Registration required.

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