“Now that we are done explaining what tax advantage programs are, let us get down to talking about taxes. (Yeah, the boring part.) Occasionally in talking to clients, we hear the comment that there is no reason to take reimbursements in advance from their company, when the same amount of money can be deducted at the end of the year on their tax return. These clients usually have no immediate need of the cash up front and think that it would be wiser on their part to save all the deductions until the end of the year, so they will have one whopping refund instead of the cash now. And that is true in the purest sense. But based on our current system of tax laws, there is a tax advantage that you get by taking them in advance: you bypass your Social Security and Medicare Taxes.

When you take deductions on your tax return, you are recouping the income taxes you paid for the year; there is no provision to get a refund on payroll taxes. In 2012 the rate for SS and Medicare is 5.65%. The person that takes $8000 in deductions on their tax return instead of taking it as reimbursements from their employer, loses out on the $454 that was withheld as payroll taxes. – Daina Smith”