Pre-tax vs. post-tax deduction.

In plain English

When a deduction is pre-tax, the government calculates your income tax on a smaller number, so the deduction costs you less than its face value. Traditional 401(k) contributions, most health premiums, and HSA contributions are typically pre-tax. Roth 401(k) contributions and things like disability insurance buy-ups are usually post-tax.

01Why it matters

It's why a pre-tax contribution shrinks your paycheck by less than its dollar amount, and it changes the real cost of every benefit you elect.

02The math, step by step

You put $200 per paycheck into a traditional 401(k) and your marginal rate is 22%. Your taxable income drops by $200, saving $44 in tax. The $200 contribution only shrinks your check by about $156. The tax savings is the deduction multiplied by your marginal rate.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT