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after-tax basis from her salary or, by participating in the Plan, she can receive benefits from the <br />Plan which allow her to pay the expenses with pre-tax dollars. The difference is illustrated in the <br />following table. (For illustration purposes it is assumed that Terry contributes nothing to and <br />receives nothing from her dependent care reimbursement account and that she pays $1.00 for <br />each $1.00 of inedical reimbursement coverage during the Plan Year. This also assumes that <br />Terry will file "Single-Head of Household," and will claim three exemptions and take the <br />standard deduction.) <br />Annual earnings <br />Medical expenses/premiums paid through Plan <br />Taxable compensation <br />Estimated Federal Income Taxes <br />Social Security and Medicare (FICA) Tax <br />(7.65%) <br />After-tax compensation <br />Medical expenses/premiums paid after-tax <br />Without Plan <br />$24,000 <br />-0 <br />$24,000 <br />-1,504 <br />With Plan <br />$24,000 <br />-2,680 <br />$21,320 <br />-1,129 <br />-1,836 -1,631 <br />$20,660 $18,560 <br />-2,680 -0 <br />Spendable income after taxes and expenses $17,980 $18,560 <br />Terry's total gross compensation, considering both gross salary and Plan benefits, will <br />have stayed the same, but her compensation after federal taxes, medical expenses, and health <br />insurance premiums will have increased by $580. <br />The full or partial nontaxability of benefits is the primary benefit of the Plan. However, <br />the exact effect the Plan will have on you will depend on the benefits you elect as well as other <br />factors that affect the amount of income taxes you pay. <br />Note -- If you receive nontaxable reimbursement from the Plan for medical or dependent <br />care expenses, you may not deduct or take a credit for these expenses on your tax return. <br />17 <br />