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Section 3 <br />ADVANTAGES AND DISADVANTAGES OF FSAS <br />ADVANTAGES <br />Employee <br />expenses paid with pre-tax <br />dollars—taxes reduced <br />- federal income tax <br />- state, income tax (except <br />New Jersey, Pennsylvania, <br />Arkansas, and Alabama) <br />- riCA <br />Employer <br />payroll taxes reduced <br />- FICA <br />- FUTA <br />- possibly state unemploy­ <br />ment taxes (varies from <br />state to state) <br />- not workers' compensation <br />2) completely voluntary pro­ <br />gram; provides benefit/ <br />tax flexibility to <br />employees <br />3) PERA contributions (for <br />certain public sector <br />employers) are not affected <br />2) employer gets float on <br />salary reduction deposits <br />until claims are reimbursed <br />3) helps attract and retain <br />employees <br />DISADVANTAGES <br />Employee <br />"use it or lose it"—for­ <br />feiture of unused amounts <br />(careful planning and good <br />communication required) <br />2) limitations on <br />ability to change after <br />start of plan year <br />Employer <br />1) employers must reimburse the <br />full amount of the claim <br />in the health reimbursement <br />account (up to the total <br />annual amount of the contri­ <br />butions elected by the <br />employee)—employer <br />may not be fully paid back <br />if employee terminates <br />employment or changes family <br />status prior to the end of <br />the plan year. <br />2) modifications to payroll <br />system required <br />DCA.