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Pre-tax Deductions Definition

Pre-tax deductions are deductions from gross wages before taxes have been withheld. The advantage of a pre-tax deduction is to reduce taxable wages and taxes.

Pre-Tax Deductions Extended Definition
To reduce employees’ tax burdens, employers may make deductions to their wages before taxable income is calculated for assessing tax liability.

Pre-tax deductions can reduce an employee’s federal, state, and local taxes (e.g., FICA taxes and income taxes). Qualified pre-tax deductions can also include:

401(k) contributions
Pre-tax health insurance
Educational assistance programs
Group-term life insurance

These deductions can be offered as an employer-paid deduction, an employee-paid deduction, or a combination of the two.

Last Updated By

Maria Tanski-Phillips | Feb 23, 2023

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