Function

There are some expenses that an employer may pay on your behalf, that you're not taxed for. Medical insurance, certain kinds of retirement plans, fringe benefits, adoption benefits and college scholarships are among them.

Significance

It's important to keep these amounts separate because it means that there's a greater-than-minimum difference between your gross income and your net income. Simply, even though you received these benefits, they weren't in a liquid form that you could have used to pay your mortgage or utility bills.

Misconceptions

Some people mistakenly believe that the IRS doesn't charge taxes on income you don't receive. This is untrue, pre-tax benefits affect your Social Security and your Medicare, but not your FICA taxes. So, your debt is reduced for some taxes, but not others.

Considerations

You don't have to pay FICA taxes on pre-tax ben wages. This is why your SS/MED wages shows a higher income than your Taxable wages, or FICA wages.

Benefits

The advantage to having benefits paid before your wages is that it reduces your FICA tax liability.