how does employee pre-tax contribution benefit employers?

Answer 1

The employer does not pay their half of the Social Security and Medicare on that money.

Answer 2

What Matt said, plus generally happier employees. Nobody *likes* to pay more tax than they have to. Happier employees have lower turnover; lower turnover, less training costs.

I don't know why another poster claims all benefits are subject to employment taxes. Some are, some aren't. There's a chart in publication 15b.

2. Fringe Benefit Exclusion Rules
This section discusses the exclusion rules that apply to fringe benefits. These rules exclude all or part of the value of certain benefits from the recipient's pay.

The excluded benefits are not subject to federal income tax withholding. Also, in most cases, they are not subject to social security, Medicare, or federal unemployment (FUTA) tax and are not reported on Form W-2.

This section discusses the exclusion rules for the following fringe benefits.

Accident and health benefits.

Achievement awards.

Adoption assistance.

Athletic facilities.

De minimis (minimal) benefits.

Dependent care assistance.

Educational assistance.

Employee discounts.

Employee stock options.

Group-term life insurance coverage.

Health savings accounts (HSAs).

Lodging on your business premises.

Meals.

Moving expense reimbursements.

No-additional-cost services.

Retirement planning services.

Transportation (commuting) benefits.

Tuition reduction.

Working condition benefits.

Answer 3

For the most part, it doesn't. Pre tax benefits are exempt from INCOME tax only. The FICA taxes are always paid. Look at your paycheck stub and you'll notice that the total wages paid and the Soc Sec wages are different -- the SS wages are higher if you have pre-tax deductions.

Sorry Matt, but you missed that one!

Answer 4

If the employer offers a SEP-IRA to employees he/she can make a significant portion of their own earnings tax-exempt too.