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Understanding Pre-Tax vs. Post-Tax Deductions. Pre-tax deductions are when your employer pulls money out of your check before the IRS gets its claws on its share of your income.
If offered as a pretax benefit, employees save on their federal payroll taxes because the amount designated by the employee is deducted from their gross income, and employers save because they are not required to pay payroll taxes on such deducted amount.
When you make contributions to a pre-tax plan such as a traditional 401(k) or 403(b) plan, that portion of your paycheck isn’t subject to income tax withholding.
Though some cafeteria plans offer an explicit choice of cash or benefits, most today are operated through a "salary redirection agreement", which is a payroll deduction in all but name. Deductions under such agreements are often called pre-tax deductions .
Pre-tax deductions are deductions that are taken out of an employee's gross pay amount before it is subject to tax. [7] and could include health, dental, or life insurance, deductions for certain retirement accounts , or deductions for FSA or HSA accounts.
Pre-tax deductions also lower your state and federal unemployment dues. Post-tax deductions, on the other hand, are payroll deductions taken from an employee’s check after taxes have already...