Did you know there is a way to get a pay raise at work without asking? Our site is dedicated to empowering workers to ask their employer to offer voluntary or employee paid benefits. But many site visitors already have these programs in place, yet fail to take advantage.
One of the amazing and overlooked features of one plan gives workers a raise in spendable income without having to ask – that is if your employer offers Flexible Spending Accounts (FSA). If your employer does not already offer an FSA you will have to ask. But for many the option to get a raise without asking is right at your fingertips.
If you are like most people, you probably have overlooked and undervalued the use of an FSA. Less than twenty five percent of employees take advantage, while almost everyone can benefit. It truly is a way to give yourself a pay raise and help your employer at the same time. It’s a good raise that pays for itself! Consider that:
- Tax savings is like getting a pay raise
- Get a raise at work without asking
- Your employer saves money while giving you a raise
Tax savings is Like Getting a Pay Raise
Benjamin Franklin famously stated: “A penny saved is a penny earned”. You can get a pay raise at work by reducing what you pay in taxes through dedicated use of your Flexible Spending Account at work. You simply have to pay for eligible expenses using pre-tax dollars rather than after tax dollars.
People with the most qualified expenses get the biggest raises, and there are three types of expenses and corresponding accounts:
Childcare expenses can be paid using a Dependent Care FSA and allow workers to contribute up to five thousand dollars annually. Families with one child in day care can save an average of $1,030 annually compared to the Child Care Tax Credit. The tax credit caps deductions at three thousand dollars per year for one child, and limits the credit percentage for incomes above forty three thousand dollars of adjusted gross income.
Unreimbursed medical expenses can be paid using a Healthcare FSA, and allows workers to contribute up to twenty five hundred dollars annually. Predictable, ongoing medical expenses work best for this type of account.
Business commuting expenses can be paid using a Commuter Reimbursement Account. You can contribute $245 monthly for both qualified parking and mass transit expenses.
Get a Pay Raise at Work without Asking
You can get a pay raise at work without asking simply by taking full advantage of FSA contributions every year. This of course assumes your employer offers an FSA. In this case you will have to ask to have the benefit offered. You can read below that your employer may reduce costs while you increase your spendable income.
The amount of pay raise you are eligible to receive depends upon the:
- types of expenses you are likely to incur
- individual income of the person making the contributions
- household income for the family
Follow a simple example of someone able to maximize contributions to all three account categories: dependent care ($5,000), healthcare ($2,500), and commuter ($5,880). This totals $13,380 in total contributions annually.
The individual income of the person making the contributions impacts the amount of pay raise. Both you and your employer make payroll tax payments (FICA) based upon the individual income of each worker. Both pay 7.65% of income up to the $113,000 annually. Above that amount the percentage drops, then rises gain at higher income levels.
FICA tax savings is the first component of your pay raise: $1,023. That is 7.65% of your total FSA contribution.
Your household income determines the second component of your tax savings pay raise. The amounts contributed into an FSA reduce your reportable W2 income, which in turn is used to calculate the amount of taxes you owe for both federal and state income taxes.
Income tax savings is the second component of your pay raise: $3,345. That is 25% of your total FSA contribution.
But don’t be fooled by these numbers. If you asked for a pay raise, and your employer granted your wish the amount would be expressed by gross income. Gross income is the amount your employer pays before taxes are taken out.
True gross savings is the third component of your pay raise: $6,618. True gross is the savings noted above, divided by 66% (1 – 7.65% – 25%). You would have to get a $6,618 pay raise to equate $4,368 in after tax spendable income.
Your Employer Saves Money while giving you a Raise
By following the example above, you have found a way to get a good pay raise of $6,618 without asking at work. The best part of the story is that you have saved your employer money by reducing the amount of payroll taxes they have to pay.
Refer back to the example above on individual income. For each dollar contributed on a pre-tax basis your employer’s payroll tax obligation was lowered by 7.65 cents. The $1,023 in annual FICA tax savings is shared by your employer.
That is why in my mind, using a flexible spending account to its fullest potential is the best way to get a pay raise at work without having to ask.