You set the amount you want to set aside from your paycheck through making an election.
Depending on the pre-tax benefit, this election applies to either the full year (in the case of FSA, HSA, and dependent care FSA) or the next month (in the case of commuter).
Your election will be deducted ratably from your paycheck. For example, if you make an FSA election of $1,200 and your company is on semi-monthly payroll (e.g. you are paid 15th and last day of the month), $50 will be deducted each paycheck. This is equal to your $1,200 election divided by 24 paychecks.
The deduction is made from your gross wages, and as a result, you save money on income taxes!
For example, if you normally make $1,000 per paycheck, then your income taxes are calculated on $1,000 worth of earnings. With pre-tax deductions, your income taxes on calculated on $950 of earnings (using our previous example of a $1,200 FSA election).
Through maxing out your pre-tax deductions on essential expenses, you could save thousands of dollars annually.