A Before-Tax Deduction is an amount subtracted from an employee’s gross pay before federal and state income taxes are calculated, often for benefits like health insurance or retirement plans.
- What is a before-tax deduction?
Answer: It is an amount deducted from gross pay before taxes, typically for benefits or retirement contributions. - What are examples of before-tax deductions?
Answer: Examples include 401(k) contributions and health insurance premiums. - How does a before-tax deduction benefit employees?
Answer: It reduces taxable income, lowering the employee’s tax liability. - What is the difference between before-tax and after-tax deductions?
Answer: Before-tax deductions reduce taxable income, while after-tax deductions do not. - How are before-tax deductions reported?
Answer: They are reported on the W-2 form, excluded from taxable wages.
