Pre-Tax Benefits 101

Understanding elections, deductions, and contributions

There are three key terms to understand for any pre-tax benefits:

  • election (the amount you choose to set aside)
  • deduction (money taken from your paycheck)
  • contribution (funds added to your Benepass account)

Together, these create the cycle of funding your pre-tax benefits.

How it works

During open enrollment, you choose to elect an annual amount to contribute to your pre-tax benefits. Your employer then takes regular deductions from your paycheck to fund this election. These deducted funds are contributed to your Benepass account according to a set schedule that varies by benefit type.

What to know

Election limits

Pre-tax benefits have regulated maximums of how much you can contribute per plan year. The IRS regulates these amounts and may change the limits from year to year. For the most recent election limits, please refer TKTK

Contribution schedules

Pre-tax benefits do not all contribute on the same schedule.

  • Health Care FSA: Full election amount contributed at start of plan year
  • Limited Purpose FSA: Full election amount contributed at start of plan year
  • Dependent Care FSA: Contributions match payroll deduction schedule
  • Health Savings Account: Employee contributions follow payroll schedule; employer contributions may be upfront
  • Transit/Parking/Commuter: Generally monthly contributions, regardless of payroll schedule

Navigating pre-tax funding

Health Care and Limited Purpose FSA contributions

You enroll in a Health Flexible Spending Account (FSA) during open enrollment and make a $1200 election. At the start of the plan year, you'll receive a $1200 upfront contribution that can be spent immediately. You are paid semi-monthly and will have $50 deducted each pay period ($50 x 24 paychecks = $1200), "paying back" the upfront contribution.

Health Savings Account and Dependent Care FSA contributions:

You enroll in a Dependent Care Flexible Spending Account (DCFSA) during open enrollment and make a $4800 election. At your first payroll of the plan year, you will receive a $200 contribution to your account, matching the $200 that is deducted from your paycheck. You will continue to receive contributions for each subsequent paycheck deduction.

Understanding tax impacts

Deductions are taken from your gross wages, which reduces your overall taxable income. 

Common variations

  • Mid-year changes are usually only allowed for qualifying life events (except for commuter benefits)
  • Employer contributions may follow different schedules
  • Some benefits may have minimum election amounts
  • Deduction schedules may vary based on your employer

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