What is a pre-tax deduction?
A pre-tax deduction is a deduction to gross wages that reduces taxable wages for the employee. There are a variety of pre-tax deductions, each with their own tax implications. Some pre-tax deductions reduce gross wages resulting in a reduction in the amount of taxable income, and therefore federal income tax withholding, the employee is subject to receive. Other pre-tax reductions also reduce FICA wages, resulting in less FICA (social security and medicare) taxes.
