Pre-tax benefits

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.

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.
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[Visual of "Understanding pre-tax benefits"]

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 income 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 $3,000.00 of qualified pre-tax expenses and a corresponding $300.00 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.

Caption: 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.

Caption: 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.

Caption: 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.

End card:

Better Money Habits
Powered by Bank of America

The material provided on this video is for informational use only and is not intended for financial or investment advice.

Bank of America and/or its affiliates assume no liability for any loss or damages resulting from one's reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not be therefore current. Consult with your own financial professional when making decisions regarding your financial or investment management.

Neither Bank of America Corporation nor its affiliates are tax or legal advisors. We suggest you consult your personal tax or legal advidor before making tax or legal-related investment decisions.

Merrill Edge® is available through Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), and consists of the Merrill Edge Advisory Center (investment guidance) and self-directed online investing.

MLPF&S is a Member SIPC and a wholly owned subsidiary of Bank of America Corporation.

Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation.

Investment products:

Are Not FDIC Insured
Are Not Bank Guaranteed
May Lose Value


© 2018 Bank of America Corporation.

[Visual of "Understanding pre-tax benefits"]

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 income 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 $3,000.00 of qualified pre-tax expenses and a corresponding $300.00 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.

Caption: 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.

Caption: 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.

Caption: 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.

End card:

Better Money Habits
Powered by Bank of America

The material provided on this video is for informational use only and is not intended for financial or investment advice.

Bank of America and/or its affiliates assume no liability for any loss or damages resulting from one's reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not be therefore current. Consult with your own financial professional when making decisions regarding your financial or investment management.

Neither Bank of America Corporation nor its affiliates are tax or legal advisors. We suggest you consult your personal tax or legal advidor before making tax or legal-related investment decisions.

Merrill Edge® is available through Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), and consists of the Merrill Edge Advisory Center (investment guidance) and self-directed online investing.

MLPF&S is a Member SIPC and a wholly owned subsidiary of Bank of America Corporation.

Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation.

Investment products:

Are Not FDIC Insured
Are Not Bank Guaranteed
May Lose Value


© 2018 Bank of America Corporation.

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The material provided on this video is for informational use only and is not intended for financial or investment advice.

Bank of America and/or its affiliates assume no liability for any loss or damages resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not be therefore current. Consult with your own financial professional when making decisions regarding your financial or investment management.

Neither Bank of America Corporation nor its affiliates are tax or legal advisors. We suggest you consult your personal tax or legal advidor before making tax or legal-related investment decisions. 

Merrill Edge® is available through Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), and consists of the Merrill Edge Advisory Center (investment guidance) and self-directed online investing.

MLPF&S is a Member SIPC and a wholly owned subsidiary of Bank of America Corporation.

Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation.

Investment products:

Are Not

FDIC Insured

Are Not

Bank Guaranteed

May Lose Value

© 2018 Bank of America Corporation.