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What are Post-Tax Deductions?
A Post-tax deduction is the amount deducted from your earnings after tax withholdings are deducted. These include state income tax, social security tax, federal income tax, and Medicare tax. A post-tax deduction, also known as an after-tax deduction, affects everyone involved in a business.
A Post-tax deduction varies depending on the state but includes the following:
- Roth 401(k) contributions
- 529 college savings plan
- Employer-sponsored pension plan
- Union dues
- Charitable contributions
- Disability and life insurance policy
Difference between Post-Tax Deduction & Pre-Tax Deduction:
The difference between post-tax and pre-tax deductions is that the deduction is hidden from the employee’s paycheck stubs. Before the tax deductions are deducted from the employee’s gross payment, the taxes are withheld. After the taxes are withheld, post-tax deductions are subtracted from the employee’s net pay.
The principal advantage of a pre-tax deduction is that it trims the reportable W-2 form income, lowering the taxes due. Another major disadvantage is that the take-home pay that an employee takes home with them is kept low, and future benefit payments are taxed upon the withdrawal.
Why am I getting Post-Tax Deductions?
Post-tax deductions can immediately make an actual impact on your financial needs. For example, you earn $50,000 per year and contribute 5 % of your income to an individual 401(k) account.
This will result in a post-tax deduction of $2,500 per year or $208.33 per month. This may seem like a small thing, but it directly affects your ability to pay for other expenses.
What are post-tax deductions on a paycheck?
A Post-Tax deduction from a paycheck means certain deductions are deducted after the taxes have been calculated and withheld from an employee’s gross income.
Also, See: Federal Income Tax
