Deductions: Pre-Tax (Before Tax) Definition
Deductions from gross wages before taxes have been withheld. The advantage of a pre-tax deduction is to reduce taxable wages, therefore reducing taxes.
Qualified pretax deductions such as 401K contributions, pre-tax health insurance, educational assistance programs or group term life insurance can help to lower an employee’s taxable income. These deductions can be offered as an employer-paid deduction, an employee-paid deduction, or a combination thereof.