Pre-tax deductions are amounts taken out of your paycheck before taxes are calculated, which lowers your taxable income and can reduce the tax you owe. Common examples include health insurance premiums, 401(k) contributions, HSAs, FSAs, commuter benefits, and dependent care benefits.

How they work

A simple example: if you earn $1,500 and have a $70 pre-tax deduction, your taxable pay becomes $1,430 before taxes are applied. That usually means smaller federal income tax withholding, and sometimes lower Social Security and Medicare withholdings too.

Common examples

  • Health, dental, and vision insurance premiums.
  • Traditional 401(k) or 403(b) retirement contributions.
  • HSA and FSA contributions.
  • Transit, parking, and dependent care benefits.

Why they matter

Pre-tax deductions can make benefits more affordable and increase take-home pay compared with paying those costs after taxes. Employers can also see savings on certain payroll taxes when eligible pre-tax deductions are used.

TL;DR: Pre-tax deductions lower the part of your pay that gets taxed, which can save money for both employees and employers.[1][9]
Would you like a simple pre-tax vs. post-tax example?