Pre-tax Deductions Definition
Pre-tax deductions are deductions to employees’ gross wages that lower their taxable wages.
To reduce employees’ tax burdens, employers may make deductions to their wages before taxable income is calculated for assessing tax liability. This won’t appear in employees’ W-2 forms or the employer’s quarterly tax report to the IRS (Form 941). Pre-tax deductions can reduce employees’ state tax, federal tax, and FICA (Medicare and Social Security) tax obligations by lowering their taxable income. Dental and medical premiums, flexible spending accounts, parking fees, traditional 401(k) plans qualify under pre-tax deductions. For more information, please consult the IRS.
A Look at Qualified Pre-Tax Deductions