What is Pre-Tax Deduction?

Pre-tax deductions are amounts subtracted from your gross pay before income taxes are calculated. This means they lower your taxable income, effectively saving you money. Common pre-tax deductions include 401(k) contributions, health insurance premiums, HSA contributions, FSA contributions, and commuter benefits. For example, if you earn $5,000/month and contribute $500 pre-tax to your 401(k), you're only taxed on $4,500. Note: pre-tax deductions still count as wages for FICA in most cases.