Jennifer elects to reduce her salary by $3,500 so she can participate in her employer’s flexible spending arrangement. Her salary reduction is allocated as follows: $2,400 for medical and dental expenses and $1,100 for child care expenses. During the year, Jennifer uses $2,000 of her salary reduction for medical and dental care and $1,000 for child care assistance.

a. How much of the $3,500 set aside in the FSA is included in Jennifer’s gross income?

b. How much of the $3,000 reimbursed from the FSA is included in Jennifer’s gross income?

c. What happens to the remaining $500?

AppendixLO1