Pre-Tax Deduction

A pre-tax deduction is money taken from your paycheck before some or all taxes are figured. It lowers your taxable wages, so you pay less tax. Common ones are a traditional 401(k), health insurance premiums, HSA and FSA contributions, and commuter benefits.

They do not all skip the same taxes. Health premiums and contributions to a health savings account or flexible spending account skip federal income tax, Social Security and Medicare. A 401(k) skips federal income tax only. In the 12% bracket, a $100 health premium each check cuts federal withholding by $12.00 and FICA by $7.65.

A few states tax some of these deductions anyway, so your state taxable wages can be higher than your federal ones. See whether a 401(k) reduces taxable income, gross pay and the methodology page.