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