There are two different places everyone talks to the IRS:
1. On your tax return
2. On every paycheck
There are 5 different taxes that are deducted from paychecks. Pretax spending can compliment your tax return, helping you save even more money on more taxes during the year.
What if I plan to itemize at the end of the year?
Pretax spending is different than itemizing on your tax return. Pretax saves you money on FICA taxes (aka Social Security & Medicare taxes). These cannot be deducted from on your tax return. The only time you can get any savings on FICA taxes is on your paychecks.
Expenses like mass-transit and parking cannot be deducted on your tax return. Other eligible things, like Dependent Care costs, can be deducted from your paychecks or your tax return, but not both. Some people choose to use pretax spending so they get their savings back sooner. You should consult with your tax advisor on which option is best for you.
What do I need to do when I file my taxes at the end of the year?
Usually nothing. The pretax deductions are already recorded in payroll. Your W-2 will report your wages in boxes 1, 3, and 5 for you. Those numbers have the pretax spending amounts already factored in.
If you enrolled in an HSA or a Dependent Care FSA, you will have to submit a form with your tax return. Your pretax benefits provider will supply you with that form.
What do the numbers in Box 14 on my W-2 mean?
Depending on your payroll system, you may see pretax total deductions reported in Box 14. There isn't a place on form 1040 (aka your tax return) to enter in the information from Box 14. It is included in the W-2 for the IRS’ information purposes only.