Question

Even though pre-tax deduction reduces your take home pay you may pay less taxes to the IRS based on the deductions is this true?

If you use the health care flex dose the deductions come out of your gross earnings every pay period ?

Answer 1

Even though pre-tax deduction reduces your take home pay you may pay less taxes to the IRS based on the deductions is this true?

Take home pay is included in taxable income. Taxable income is the amount of income used to calculate how much tax an individual or a company owes to the government in a given financial year. It is generally described as gross income or adjusted gross income (which is minus any deductions or exemptions allowed in that tax year). The tax liability of an individual is calculated by Internal Revenue Service (IRS) through his gross income.

Taxpayers can take either the standard deduction for their filing status or itemize the deductible expenses they paid during the year. It is not permitted to both itemize deductions and claim the standard deduction, too.

If a person is claiming the standard deduction, it often reduces an his taxable income more than itemizing. It is because the Tax Cuts and Jobs Act virtually doubled these deductions from what they were prior to 2018. A person who is meant to pay taxes would need a significantly large amount of medical costs, charitable contributions, mortgage interest, and other qualifying itemized deductions to get pass these standard deduction amounts.

If you use the health care flex dose the deductions come out of your gross earnings every pay period ?

A Flexible Spending Account or FSA is a tax-advantage plan offered by employers to the employees and is approved by the IRS. It allows plan beneficiaries to deposit funds from their paychecks into the plan throughout the year, which can then be used to pay eligible care expenses. The contributions made to a flexible spending account (FSA) are not tax deductible because the accounts are funded through salary deferrals of the employees.

However, contributing to an FSA does reduce the taxable wages since the account is funded with the pre tax money.The claim cannot be made for tax deductions because the money was not taxed in the first place. So, at the end of every financial year, any balance remaining in the account is usually forfeited. Hence, It is advisable to use it by the annual deadline.