Pre-Tax vs Post-Tax Deductions: What Each One Saves You
Pre-tax deductions come out before taxes, post-tax after. But a 401(k) still pays FICA while health premiums don't. 2026 limits and a worked pay stub example.
Pre-tax deductions come out of your paycheck before taxes are calculated, so they shrink your taxable wages. Post-tax deductions come out after, so they don't. That's the textbook definition, and it's correct as far as it goes.
The part most guides skip: "pre-tax" never means pre-all-taxes. There are four taxes on a typical paycheck (federal income tax, Social Security, Medicare, and state income tax), and each pre-tax deduction is exempt from a different combination of them. A traditional 401(k) contribution avoids income tax but still pays Social Security and Medicare. A pre-tax health premium avoids all four. Get that distinction and every number on your pay stub starts to make sense.
The Short Version
| Deduction | Federal income tax | Social Security & Medicare | State income tax (most states) |
|---|---|---|---|
| Traditional 401(k), 403(b), 457(b) | Pre-tax | Taxed | Pre-tax (PA taxes all three; NJ taxes 403(b) and 457) |
| Health, dental, vision premiums (Section 125) | Pre-tax | Pre-tax | Pre-tax |
| Health FSA | Pre-tax | Pre-tax | Pre-tax |
| HSA through payroll (Section 125) | Pre-tax | Pre-tax | Pre-tax (CA and NJ tax it) |
| Dependent care FSA | Pre-tax | Pre-tax | Pre-tax in most states |
| Commuter transit and parking | Pre-tax up to $340/month | Pre-tax | Pre-tax in most states |
| Roth 401(k) | Post-tax | Taxed | Post-tax |
| After-tax 401(k) | Post-tax | Taxed | Post-tax |
| Wage garnishments, child support | Post-tax | Taxed | Post-tax |
| Union dues | Post-tax | Taxed | Post-tax |
| Charitable giving through payroll | Post-tax | Taxed | Post-tax |
| Employee stock purchase plan (ESPP) | Post-tax | Taxed | Post-tax |
The 401(k) row is the one that surprises people. According to the IRS retirement plan FAQ, elective deferrals to a 401(k) are not subject to federal income tax withholding, but they are subject to Social Security and Medicare. Section 125 cafeteria plan deductions are exempt from both.
How Pre-Tax Deductions Change Your Pay Stub
Here's the order your payroll system works in:
- Start with gross pay (all earnings for the period).
- Subtract pre-tax deductions to get the wage figures each tax uses. There are usually at least two: federal taxable wages and Social Security/Medicare wages.
- Calculate each tax on its own wage figure.
- Subtract taxes and post-tax deductions from gross pay to get net pay.
Our labeled sample stub shows both kinds. The 401(k) and medical premium are in the pre-tax block (section 5), union dues are in the post-tax block (section 7).
| 4Earnings | Hrs | Rate | Current | 9YTD |
|---|---|---|---|---|
| Regular | 80.00 | 28.50 | 2,280.00 | 43,320.00 |
| Overtime | 4.00 | 42.75 | 171.00 | 3,249.00 |
| Gross pay | 2,451.00 | 46,569.00 |
| 5Pre-tax deductions | Current | YTD |
|---|---|---|
| 401(k) 5% | 122.55 | 2,328.45 |
| Medical (Sec. 125) | 85.00 | 1,615.00 |
| 10Leave | Accrued | Used | Balance |
|---|---|---|---|
| PTO (hrs) | 87.40 | 40.00 | 47.40 |
| Sick (hrs) | 29.30 | 8.00 | 21.30 |
| 6Taxes | Current | YTD |
|---|---|---|
| Federal income tax | 185.37 | 3,522.03 |
| Social Security (OASDI) | 146.69 | 2,787.11 |
| Medicare | 34.31 | 651.89 |
| CA state income tax | 60.85 | 1,156.15 |
| CA SDI | 30.76 | 584.44 |
| 7Post-tax deductions | Current | YTD |
|---|---|---|
| Union dues | 25.00 | 475.00 |
- 1Employer information. Company name and address. Some states also require the employer FEIN or legal entity name.
- 2Employee information. Your name, employee ID, and usually only the last four digits of your SSN.
- 3Pay period and pay date. The dates you worked versus the date you were paid. They are rarely the same.
- 4Earnings. Each pay type on its own line: hours, rate, this period, and year to date.
- 5Pre-tax deductions. Taken out before income tax is figured, which lowers your taxable wages.
- 6Taxes. Federal income tax, Social Security (OASDI), Medicare, and any state or local taxes.
- 7Post-tax deductions. Taken out after taxes: Roth 401(k), union dues, garnishments.
- 8Net pay. What actually lands in your bank account.
- 9Year-to-date (YTD) column. Running totals since January 1. Lenders and landlords read this column first.
- 10Leave balances. PTO and sick hours accrued, used, and remaining.
Sample pay stub with illustrative figures: biweekly pay period 19 of 26 in 2026, single filer, California employee. Built with the MakeMyPaystub builder.
Worked Example: Why Your Stub Has Two Different "Wages"
Using the sample stub above: gross pay is $2,451.00, with a $122.55 traditional 401(k) contribution (5%) and an $85.00 medical premium through a Section 125 plan.
Federal taxable wages subtract both:
$2,451.00 minus $122.55 minus $85.00 = $2,243.45
Social Security and Medicare wages subtract only the Section 125 premium:
$2,451.00 minus $85.00 = $2,366.00
So the taxes come out like this:
| Tax | Wage base used | Rate | Amount |
|---|---|---|---|
| Social Security (OASDI) | $2,366.00 | 6.2% | $146.69 |
| Medicare | $2,366.00 | 1.45% | $34.31 |
| Federal income tax | $2,243.45 | W-4 withholding tables | $185.37 |
If you took 6.2% of either $2,451.00 or $2,243.45, you wouldn't get $146.69. Social Security wages sit in between, because the 401(k) contribution is still taxed for Social Security and Medicare. Our explainer on OASDI goes deeper on that line.
What the medical premium being pre-tax is worth
Suppose the same $85.00 premium were deducted after tax instead:
- Social Security and Medicare wages rise by $85.00, so FICA goes up by $85.00 x 7.65% = $6.50
- Federal taxable wages rise by $85.00. This employee is in the 12% bracket, so federal withholding goes up by about $85.00 x 12% = $10.20
Running it pre-tax saves about $16.70 per paycheck, or $434 over 26 paychecks, on federal taxes alone. State income tax and California SDI add a little more. That's why most employers run health premiums through a Section 125 plan.
Pre-Tax Deductions, One by One
Traditional 401(k), 403(b), and 457(b). Your contribution skips federal income tax now and is taxed when you withdraw it in retirement. It still pays Social Security and Medicare today. Most states follow the federal treatment, with two notable exceptions: Pennsylvania taxes employee 401(k) and 403(b) deferrals as compensation, and New Jersey excludes 401(k) deferrals but taxes 403(b) and 457 contributions.
Health, dental, and vision premiums. When run through a Section 125 cafeteria plan, they're excluded from federal income tax, Social Security, Medicare, and nearly every state's income tax. Most employer plans work this way.
Health Savings Account (HSA). HSA contributions made through payroll under a Section 125 plan skip federal income tax and FICA. Contributions you make on your own (outside payroll) are deductible on your tax return, but you still paid FICA on that money. California and New Jersey don't recognize HSAs, so contributions are taxable on those state returns.
Health FSA and dependent care FSA. Both are Section 125 benefits, so they skip federal income tax and FICA. The catch is the use-it-or-lose-it rule: health FSA money you don't spend may be forfeited, though plans can allow a limited carryover.
Commuter benefits. Transit passes and qualified parking can be excluded up to $340 per month each in 2026 under the qualified transportation fringe rules.
Post-Tax Deductions, One by One
Roth 401(k). You pay income tax and FICA now, and qualified withdrawals in retirement are tax-free. On your stub, Roth contributions usually appear in the post-tax block, often labeled "Roth" or "401K-R."
After-tax 401(k). Different from Roth: contributions are after tax, but earnings are taxable when withdrawn unless converted. Some plans allow this to fund larger "mega backdoor Roth" conversions.
Garnishments and child support. Court-ordered withholdings come out of pay after taxes. Federal law limits how much of your disposable earnings can be garnished, and child support orders can take more than ordinary debts.
Union dues, charitable gifts, ESPP. All post-tax. Union dues and charitable gifts don't reduce your paycheck taxes, though charitable gifts may be deductible on your return if you itemize.
Disability insurance premiums. Often offered either way, and this is one case where post-tax can be the better choice. If you pay premiums with after-tax dollars, disability benefits you receive are generally tax-free. If premiums are pre-tax (or employer-paid), benefits are generally taxable.
For the abbreviations these deductions hide behind on a real stub (401K, DEN, VIS, MED125, GARN, LTD), see our pay stub abbreviations glossary.
2026 Contribution Limits for Pre-Tax Benefits
| Benefit | 2026 limit | Source |
|---|---|---|
| 401(k), 403(b), 457(b) elective deferrals | $24,500 | IRS Notice 2025-67 |
| Catch-up, age 50 and older | $8,000 | IRS Notice 2025-67 |
| Catch-up, ages 60 through 63 | $11,250 (instead of $8,000) | IRS Notice 2025-67 |
| HSA, self-only coverage | $4,400 (plus $1,000 catch-up at 55+) | IRS Rev. Proc. 2025-19 |
| HSA, family coverage | $8,750 (plus $1,000 catch-up at 55+) | IRS Rev. Proc. 2025-19 |
| Health FSA | $3,400 (carryover up to $680 if plan allows) | IRS Rev. Proc. 2025-32 |
| Dependent care FSA | $7,500 ($3,750 married filing separately) | One Big Beautiful Bill Act, IRC Section 129 |
| Transit and parking | $340 per month each | IRS Rev. Proc. 2025-32 |
Two 2026 changes worth knowing:
- Dependent care FSA jumped from $5,000 to $7,500, the first increase since 1986 outside a one-year pandemic exception. Your employer has to amend its plan to offer the higher limit, so check your enrollment materials.
- Roth catch-up for high earners. Under SECURE 2.0, starting in 2026, if your prior-year Social Security wages from your employer exceeded $150,000, any catch-up contributions you make must be Roth (post-tax). If you're 50 or older and earn above that line, expect your catch-up contributions to move from the pre-tax block to the post-tax block on your stub.
How Much Does a Pre-Tax Deduction Really Cost You?
Less than its face value. A $100 deduction that's pre-tax for everything (like a Section 125 premium) costs roughly:
$100 minus income tax saved minus FICA saved
| Federal bracket | Income tax saved | FICA saved | Cost to take-home pay |
|---|---|---|---|
| 10% | $10.00 | $7.65 | $82.35 |
| 12% | $12.00 | $7.65 | $80.35 |
| 22% | $22.00 | $7.65 | $70.35 |
| 24% | $24.00 | $7.65 | $68.35 |
For a traditional 401(k), drop the FICA column: $100 in the 22% bracket costs about $78 in take-home pay. State income tax savings come on top of these. To see the effect on your own check, our free paycheck calculator lets you enter pre-tax 401(k) and health deductions and shows the new take-home pay.
Check Your Own Stub in Three Steps
- List every deduction and sort it. Pre-tax for everything (Section 125), pre-income-tax only (401(k)), or post-tax.
- Rebuild your wage figures. Federal taxable wages = gross minus all pre-tax deductions. Social Security wages = gross minus Section 125 deductions only. Many stubs print these as "Fed Taxable Wages" and "FICA Wages" or "SS Wages."
- Compare. If your Social Security tax doesn't equal 6.2% of your rebuilt Social Security wages, a deduction is probably coded the wrong way in payroll. A health premium accidentally set up as post-tax is a common culprit and costs you money every paycheck.
At year end, the same logic explains your W-2: Box 1 (wages for income tax) is gross pay minus all pre-tax deductions, while Boxes 3 and 5 (Social Security and Medicare wages) are higher whenever you contributed to a traditional 401(k). Your final pay stub's YTD totals should line up with those boxes.
FAQ
What are pre-tax deductions?
Amounts taken out of gross pay before some or all taxes are calculated, which lowers your taxable wages. Examples: traditional 401(k), 403(b), 457 contributions, Section 125 health premiums, HSA and FSA contributions, and commuter benefits.
What are post-tax deductions?
Amounts taken out after taxes are calculated. Examples: Roth 401(k), after-tax 401(k), garnishments and child support, union dues, charitable gifts, and ESPP contributions.
Is a 401(k) deduction pre-tax for Social Security and Medicare?
No. It's pre-tax for income tax only. Social Security and Medicare still apply. Section 125 deductions like health premiums reduce both.
Are health insurance premiums pre-tax?
Usually, when your employer runs them through a Section 125 cafeteria plan. Then they reduce income tax, Social Security, Medicare, and most state taxes.
Is it better to have pre-tax or post-tax deductions?
Pre-tax saves tax now, post-tax can save tax later. Pre-tax is almost always better for health premiums and FSAs. For retirement it depends on your tax rate now versus in retirement. For disability insurance, after-tax premiums generally make benefits tax-free.
What are the 2026 401(k) contribution limits?
$24,500, plus $8,000 catch-up at 50 and older, or $11,250 at ages 60 through 63. Catch-ups must be Roth if your prior-year Social Security wages from that employer exceeded $150,000.
Do pre-tax deductions lower my take-home pay?
Yes, but by less than the deduction. A $100 Section 125 premium in the 12% bracket lowers take-home pay by about $80.
Do all states treat pre-tax deductions the same?
No. Pennsylvania taxes 401(k) and 403(b) contributions, New Jersey taxes 403(b) and 457 contributions, and California and New Jersey tax HSA contributions.
The Takeaway
Pre-tax deductions lower your taxable wages, but not equally for every tax. Section 125 benefits (health premiums, HSA, FSA) skip income tax and FICA. Traditional 401(k) contributions skip income tax only. Post-tax deductions skip nothing now, though Roth contributions and after-tax disability premiums can pay off later. That's why your pay stub can show one gross pay and two or three different wage figures underneath it.
To see how all of this adds up to the number in your bank account, read gross pay vs net pay, or start from the top with our guide on how to read a pay stub.
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