(Tax Year 2024 – Filed in 2025)
Overview
As a W-2 employee, your paycheck may include various deductions taken out for benefits or contributions. These deductions are categorized as either pre-tax or post-tax, and understanding the difference directly impacts your taxable income, refund amount, and eligibility for certain tax credits.
These deductions are often reported in Box 12 or reflected indirectly in your Box 1 wages on Form W-2.
What Are Pre-Tax Deductions?
Pre-tax deductions are amounts taken out of your paycheck before federal income tax, Social Security tax, and/or Medicare tax are applied.
These deductions reduce your taxable income, lowering your overall tax liability. They are generally used for qualified retirement, health, and commuter benefits.
Common Pre-Tax Deductions
- 401(k), 403(b), 457(b) contributions (Box 12 – Code D, E, G)
- Health Savings Account (HSA) contributions (Box 12 – Code W)
- Flexible Spending Accounts (FSA) – Medical or dependent care
- Premiums for employer-sponsored health insurance
- Commuter benefits (transit or parking, up to IRS limits)
Example:
If your gross pay is $70,000 and you contribute $6,000 to a traditional 401(k), Box 1 (taxable wages) will reflect $64,000, lowering your taxable income.
What Are Post-Tax Deductions?
Post-tax deductions are withheld from your paycheck after taxes have already been calculated and applied. These do not reduce your taxable income but may be used to pay for benefits or voluntary contributions.
Common Post-Tax Deductions
- Roth 401(k) contributions
- After-tax life insurance premiums
- Union dues (if not deducted pre-tax)
- Charitable donations through payroll
- Garnishments (child support, IRS levies, etc.)
Example:
You contribute $2,000 to a Roth 401(k). This is deducted from your net (after-tax) pay and does not reduce your taxable income reported in Box 1.
How to Tell the Difference on Your W-2
- Box 1: Shows your taxable wages after pre-tax deductions have been subtracted.
- Box 3 and 5: May be higher than Box 1 if deductions apply only to federal tax, not Social Security or Medicare.
- Box 12: Lists the deduction codes for benefits and contributions.
Why This Matters for Tax Filing
- Pre-tax deductions lower your taxable income and reduce your tax liability.
- Post-tax deductions do not affect your income taxes but may grow tax-free (e.g., Roth 401(k)).
- Misunderstanding which is which can lead to over-reporting or missing deductions.
Step-by-Step: How to Review Deductions on Your W-2
- Compare Gross Pay to Box 1
- A lower Box 1 means pre-tax deductions were made.
- Review Box 12 Codes
- Match codes (D, E, W, etc.) to benefits you’ve elected.
- Consult Payroll Records
- Use year-end pay stub or employer-provided payroll summary.
- Report Accordingly on Your Tax Return
- Some deductions are already factored into your W-2
- Others (like IRA or student loan interest) may need to be entered separately on Schedule 1
Conclusion
Pre-tax and post-tax deductions determine how much of your income is taxed and how much you ultimately owe or get refunded. Reviewing your W-2, especially Box 1 and Box 12, is essential to filing an accurate return and claiming the correct tax benefits.
Call to Action
Not sure whether your deductions are pre-tax or post-tax? Schedule a meeting with Anshul Goyal, CPA EA FCA, to review your W-2 and ensure you’re filing your 2024 tax return with the correct numbers and strategy.
Top 5 FAQs: Pre-Tax vs. Post-Tax Deductions
Do pre-tax deductions reduce my taxable income?
Yes, they lower your taxable wages and reduce your tax liability.
Are Roth 401(k) contributions pre-tax?
No, Roth contributions are post-tax and do not reduce taxable income.
Where do I find deductions on my W-2?
Look in Box 12 and compare the amount in Box 1 to your total earnings.
Can I deduct post-tax insurance premiums on my tax return?
Generally no, unless you itemize and meet certain medical expense thresholds.
What if Box 1 is lower than my actual salary?
That’s normal if you had pre-tax deductions such as 401(k) or health insurance contributions.
About Our CPA
Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant in the U.S. and an Enrolled Agent authorized to represent clients before the IRS. He helps W-2 employees, business owners, and Indian nationals in the U.S. understand tax-efficient compensation and ensure IRS compliance.
Schedule a meeting with Anshul here:
https://calendly.com/anshulcpa/
Disclaimer
This blog is for general informational purposes only and does not constitute legal or tax advice. Please consult a qualified CPA for advice based on your individual tax situation.