A pre-tax deduction is money taken out of your paycheck before income tax is calculated. Because it lowers taxable income, saving $100 pre-tax usually reduces your take-home pay by less than $100.
Example
A single filer in a state without income tax earns $70,000. Contributing 10% ($7,000) to a traditional 401(k) changes take-home pay from $58,075 to $52,265 – a difference of only $5,810, because federal income tax falls by $1,190.
Common pre-tax deductions
- Traditional 401(k)/403(b): lowers federal and most state income tax, not FICA.
- HSA through payroll: lowers income tax and FICA.
- Health, dental, vision premiums (Section 125): lowers income tax and FICA.
- FSA and commuter benefits: similar treatment within annual limits.
State treatment can differ: Pennsylvania, for example, taxes 401(k) deferrals. Our calculator applies the federal treatment to state tax as a simplification; see the methodology.
Try it: open Advanced options in the paycheck calculator.