Pre-Tax Deductions
Voluntary deductions taken before income tax is calculated, so the money routed there is never counted as taxable income and the tax bill falls.
Because the deduction lowers tax liability in the same step that funds the benefit, pretax treatment acts as a built in incentive to save.
Often confused with
- Voluntary Deductions
- All pretax deductions are voluntary, but some voluntary deductions are taken after tax instead.
Taught in
See also
5.1.C.5