Before-tax Deduction Definition

A before-tax deduction, or pre-tax deduction, is taken from gross wages before withholding any taxes. Before-tax deductions help to lower an individual’s taxable wages and reduce taxes.

Before-tax Deduction Extended Definition
Before-tax deductions are payments that are deducted from employees’ pre-tax income, lowering their taxable income. These types of deductions go toward certain employee benefits.

In short, withhold before-tax deductions before withholding taxes.

Before-tax deductions include some retirement plans, HSAs and FSAs, health insurance, life insurance, and transportation programs. Some deductions are pre-tax up to a certain limit. Understand IRS rules on taxable benefits to stay compliant.

Related Articles
What Are Pre-tax Deductions?
What’s the Difference Between Pre-tax and Post-tax Deductions? 
Publication 15-B, Employer’s Tax Guide to Fringe Benefits 

Last Updated By

Rachel Blakely-Gray | Feb 15, 2023

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