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Global Work Glossary

What are post-tax deductions and their significance?

An after-tax deduction refers to the portion subtracted from an employee's earnings after tax withholding, covering federal, state, local, Social Security, and Medicare taxes. These deductions, affecting the net pay or take-home pay, vary based on location and can include:

  • Garnishments: Court-ordered deductions like child support.
  • Roth 401(k) contributions: Post-tax investments in retirement savings.
  • Disability and life insurance premiums: Policies not tax-deferred.
  • 529 college savings plans: Contributions for education costs.
  • Charitable contributions and union dues.

Examples of Post-Tax Deductions

Post-tax deductions can include wage garnishments for unpaid debts and voluntary deductions like health insurance or retirement contributions. These deductions are disclosed to employees, requiring written consent.

Calculation of Post-Tax Deductions

To calculate post-tax deductions, multiply the gross income by the FICA tax rate, then subtract FICA and additional taxes. Deduct voluntary contributions to determine the final take-home pay, which varies by employee.

Difference between Pre-Tax and After-Tax Deductions

Pre-tax deductions, subtracted from gross pay before taxes, include traditional 401(k) contributions and health insurance. After-tax deductions, subtracted after taxes, increase take-home pay but incur higher tax liability.

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