- Emotional Intelligence
- Employee Benefits
- Employee Benefits Administration
- Employee Database
- Employee Empowerment
- Employee Engagement in HR
- Employee Management
- Employee Net Promoter Score (eNPS)
- Employee Onboarding
- Employee Orientation
- Employee Relations
- Employee Satisfaction
- Employee Turnover
- Employee Type
- Employer Identification Number (EIN)
- Employment Contract
- Exit Interview
What Is After-Tax Deduction?
An after-tax deduction is a tax that is subtracted from a taxpayer’s gross earnings after taxes (federal, state, and local income, Social Security, and Medicare) are withheld. After-tax deductions can vary by state, but may include 401(k) contributions, employer-sponsored pension plans, 529 college savings plans, union dues, disability and life insurance policies, and charitable contributions.
Here’s a simplified example for calculating an after-tax deduction:
Caroline’s gross wages are $1,000.00. Her FICA taxes are 7.65%, additional taxes total $75.00, and her Roth 401(k) after-tax deduction is 4%.
Here’s how Caroline’s take-home pay is calculated:
Multiply the gross pay by the FICA percentage: $1,000.00 X 0.0765 = $76.50
Multiply the gross pay by the deduction percentage: $1,000.00 X 0.04 = $40.00
Subtract the FICA amount from the gross pay: $1.000.00 - $76.50 = $923.50
Subtract the additional taxes from the new total: $923.50 - $75.00 = $848.50
Subtract the deduction amount from the new total: $848.50 - $40.00 = $808.50
Caroline’s take-home pay equals $808.50.
What Is a Standard (Std) After-Tax Deduction?
A standard (std) after-tax deduction is a fixed dollar amount that can be used to reduce the amount of tax liability. A taxpayer can decide whether to claim the standard after-tax deduction or to itemize deductions. The standard deduction allows a taxpayer to take a deduction even if there is nothing to itemize, eliminates the need to itemize, and reduces the need for keeping expense receipts.
Amount of Standard After-Tax Deduction
The standard after-tax deduction amount varies by year and depends on the following:
- Filing status
- Whether or not the taxpayer is blind
- Whether or not you are married or a qualified widow
However, as of 2018, the standard deduction is as follows:
- For single or married filing separately = $12,000
- For married filing jointly or qualifying widow(er) = $24,000
- For head of household = $18,000
- For single or head of household over age 65 or blind, there is an increase of $1,600
- For married or qualifying widow(er) over age 65 or blind, there is an increase of $1,300
Who Can’t Use the Standard After-Tax Deduction?
Taxpayers who can’t use the standard deduction include:
- Someone filing “married filing separately” whose spouse itemizes deductions.
- Someone who files a tax return for a period of less than 12 months.
- Someone who was a nonresident or dual-status alien during the year (unless that person is married to a U.S. citizen or resident alien and chooses to be treated as a U.S. resident).
- An estate or trust, common trust fund, or partnership.
What Is the Difference Between Pre-tax and After-Tax Deductions?
The main difference between pre-tax and after-tax deductions is when the deductions are withheld from a paycheck. Pre-tax deductions are subtracted from the employee’s gross pay before taxes are withheld. After-tax deductions are subtracted from the employee’s net pay after taxes are withheld.
The primary advantage of pre-tax deductions is that they reduce the reportable W2 income, effectively lowering the taxes due. The primary disadvantages are that the take-home pay is lower and future benefit payments will be taxed upon withdrawal.
The primary advantage of after-tax deductions is that the take-home pay is higher, while the primary disadvantage is that the tax liability is also higher.
List of Post-Tax Deductions
Here is a list of post-tax deductions:
- Life insurance
- Disability insurance
- Roth 401(k)
- Union dues
- Flexible savings/spending accounts
- Some healthcare benefits
- Schedule A deductions
Flexible Savings Accounts
Flexible spending accounts that can offer a post-tax deduction include:
- Medical expenses
- Dependent care
- Health premiums
- Adoption assistance
Schedule A Deductions
Schedule A deductions include:
- Medical and dental expenses
- Taxes you paid
- Interest you paid
- Gifts to charity
- Casualty and theft losses
Some employees will have an Income Withholding order requiring an employer to garnish wages from the employee’s paycheck.
Reasons for a wage garnishment include unpaid and overdue:
- Child support
- Student loans
- Credit card debt
- Medical bills