Forbes Advisor has published a helpful piece that breaks down some of the key aspects involving pre-tax deductions, what is permissible, what isn’t, and how they work.
The core idea behind pre-tax deductions, of course, is that they can benefit employees directly in some way while also reducing their taxable income.
Some examples of pre-tax deductions include contributions toward health plans, insurance coverage, dependent care, and transportation benefits, all of which can be taken from an employees’ gross income prior to calculating any taxes.
It’s important to keep an eye on the compliance issues involved, however, given that many types of pre-tax deductions are capped, including some retirement accounts, FSAs, and HSAs. Also, there are eligibility requirements, specific rules for specific plans, and limitations that apply exclusively to highly-compensated employees that must all be adhered to when administering these types of programs, as well.
You can read more about the issues involving pre-tax deductions here.
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