What are Pre-Tax Deductions and Contributions?
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What are Pre-Tax Deductions and Contributions?
Pre-tax deductions and contributions refer to amounts taken from an employee’s gross income before taxes are calculated. This means that these contributions lower the employee’s taxable income, effectively reducing the amount of taxes owed. Common examples include contributions to retirement accounts (like a 401(k)), health insurance premiums, and flexible spending accounts. By using pre-tax deductions, employees can save money on their tax bills while also prioritizing savings for future expenses.