Glossary of Human Resources Management and Employee Benefit Terms
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.
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.
The standard after-tax deduction amount varies by year and depends on the following:
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
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.
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.
Here is a list of post-tax deductions:
Some healthcare benefits
Schedule A deductions
Flexible spending accounts that can offer a post-tax deduction include:
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:
Credit card debt
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