When you pay for benefits such as health insurance with pre-tax (also called before-tax) dollars, the deductions are taken off your gross income before income taxes are paid. Taxes are then calculated on the reduced salary amount. Having pre-tax dollar deductions results in less income tax paid than would otherwise be the case.
Examples of items that can be paid with pre-tax dollars include medical and dental insurance and employee parking fees. By way of contrast, after-tax dollar deductions are subtracted from your salary after taxes have been calculated and subtracted from your pay. Thus, they provide no immediate tax advantage.
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Categories Financial Security for All Tags healthcarecosts, income taxes, investingThis work is supported in part by New Technologies for Agriculture Extension grant no. 2020-41595-30123 from the USDA National Institute of Food and Agriculture. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture.
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