Pre-Tax Deduction Primer

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.

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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. 

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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.

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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. 

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You can read more about the issues involving pre-tax deductions here.