What are pre-tax contributions?

Contributions you make to an FSA are made on a pre-tax basis. This means your contributions are taken from your paycheck before federal, FICA, and most state and local taxes are withheld. You also get an immediate advantage from contributing pre-tax dollars : right in your paycheck. Each pre-tax dollar you contribute lowers your current taxable income, so you end up reducing the current federal income tax and FICA tax that you pay. In most cases, you’ll also pay lower state and local income taxes. Although pre-tax contributions reduce your current income for tax purposes, they don’t lower it for determining your company benefits that are based on pay.