Common Payroll Deductions Explained

Not every deduction on your paycheck works the same way. Here's the difference between pre-tax and post-tax, and what each common one does.

Pre-Tax vs. Post-Tax

Pre-tax deductions come out of your pay before federal (and often state) income tax is calculated, which lowers your taxable income. Post-tax deductions come out after taxes are already applied, so they don't reduce what you're taxed on.

401(k) / Retirement Contributions

Traditional 401(k) contributions are pre-tax, reducing your taxable income now — you pay tax on the money when you withdraw it in retirement. A Roth 401(k) works the opposite way: contributions are post-tax, but qualified withdrawals in retirement are tax-free.

Health Insurance Premiums

Employer-sponsored health premiums are usually deducted pre-tax through a Section 125 (cafeteria) plan, lowering both your income tax and FICA wages.

Health Savings Account (HSA)

HSA contributions are pre-tax (or tax-deductible if made outside payroll), and, unlike an FSA, unused funds roll over year to year and stay with you if you change jobs.

Flexible Spending Account (FSA)

Also pre-tax, but FSA funds generally must be used within the plan year or a short grace period, or they're forfeited.

Post-Tax Deductions

Things like Roth 401(k) contributions, union dues in some states, wage garnishments, and voluntary life insurance are typically taken out after taxes.

Why This Matters for Your Take-Home Pay

Two people with the same salary can have very different net pay depending on how much they route through pre-tax deductions — every pre-tax dollar reduces the income your federal and state tax (and sometimes FICA) is calculated on.

Related: How to Read Your Paycheck Stub.