Many employers offer pre-tax benefits like flexible spending accounts. However, sometimes it can be tough to understand how these benefits actually save you money. Get the know-how you need to make the most of your pre-tax deductions.
[Visual of “Understanding pre-tax benefits”]
[Visual Disclaimer: *See important information at the end of the video]
Many employers offer pre-tax benefits to their employees.
[Visual showing Transportation, Health and Retirement plans and potentially more.]
These plans allow you to set aside part of your income, which will not be subject to federal taxes, or will defer taxes to help cover certain expenses.
This can potentially save you a lot in federal income taxes.
For example, putting $3,000 toward qualified pre-tax expenses could save you from $300 to even $1,000 or more in federal income taxes for that year – depending on your exact tax rate and various other factors.
[Visual of a “Pre-tax health benefit account” reflecting the $3,000 of qualified pre-tax expenses and a corresponding $300 to $1,000 in tax savings. With a disclaimer: Depending on your tax rate and other factors.]
Let’s take a look at three common categories of pre-tax benefits that employers offer: health, transportation and retirement.
[Visual of “Health benefits”]
Employers often offer benefits that make taking care of your health a little easier, like Health Flexible-Spending Arrangements, also known as Health FSAs, and Health Savings Accounts, or HSAs.
These plans allow you to set aside a portion of your income before federal income taxes to cover eligible medical expenses that aren’t covered by your insurance. This could include prescriptions, doctor’s office co-pays, eye exams and glasses.
However, both FSAs and HSAs have specific features and limitations, so make sure to learn about the plans offered by your employer.
[Visual of “Transportation benefits”]
Many employers also offer pre-tax plans that offset the costs of getting to and from work. These plans are often called Transportation Spending Accounts, or TSAs.
TSAs allow you to set aside some of your pre-tax income, up to certain limits, to cover things like a monthly transit pass or parking expenses.
[Visual of “Retirement benefits”]
An employer-sponsored retirement plan is often the biggest potential benefit that employers offer their workers. These plans allow you to contribute part of your income tax deferred, so you won’t pay federal income tax on the money until you take it out in retirement.
Setting aside the maximum amount you’re allowed to put toward your retirement account on a tax-deferred basis is potentially a great way to reduce your current taxable income, while also planning for the future.
[Visual of a stack of money being allocated from “Income” into retirement, and a corresponding stack of money being contributed by the company.]
In some cases, employers even offer matching contributions to help you set aside more.
These are just the basics. Talk to your HR department to learn more about what pre-tax benefits your employer may offer.
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