An After-Tax Deduction is a payroll deduction taken from an employee’s paycheck after federal and state income taxes have been calculated, typically for benefits or contributions not eligible for pre-tax treatment.
- What is an after-tax deduction?
Answer: It is a payroll deduction taken after income taxes are calculated, used for certain benefits or contributions. - What are examples of after-tax deductions?
Answer: Examples include Roth 401(k) contributions and certain life insurance premiums. - How does an after-tax deduction differ from a pre-tax deduction?
Answer: It is deducted after taxes, reducing take-home pay but not taxable income, unlike pre-tax deductions. - Why might an employee choose an after-tax deduction?
Answer: It may be chosen for tax-free withdrawals in retirement (e.g., Roth accounts) or specific benefit plans. - How is an after-tax deduction reported?
Answer: It is reported on the employee’s W-2 form in the appropriate taxable wage boxes.
