Glossary term
Pre-tax deduction
Subtracted from gross before income tax is calculated.
Definition
A pre-tax deduction is a payroll deduction that reduces the employee's taxable income — meaning it is subtracted from gross pay before federal (and usually state) income tax is calculated. Common pre-tax deductions include traditional 401(k) contributions, HSA contributions, FSA contributions, and most employer-sponsored medical, dental, and vision insurance premiums. Pre-tax deductions reduce taxable wages reported on the W-2 in box 1 but do not reduce Social Security and Medicare wages reported in boxes 3 and 5 (with limited exceptions for HSA and certain Section 125 elections).
Example
A $200 pre-tax 401(k) contribution reduces federal taxable income by $200 for that paycheck.
Related terms
- Pay period — The recurring window of time covered by a single paycheck.
- Pay frequency — How often paychecks are issued.
- Payday — The calendar day wages are deposited.
- In arrears — Wages paid after the pay period ends.
- Biweekly — Every other week — 26 paychecks per year.
- Semimonthly — Twice per month on fixed dates — 24 paychecks per year.
See also
- Pay schedule calculator — convert salary to per-paycheck amount
- Pay frequencies primer — weekly, biweekly, semimonthly, monthly
- Frequently asked questions