After Tax Deductions-revised

After Tax Deductions-Revised

Term Definition

After tax deductions are made after applicable payroll taxes are deducted and pre-tax deductions are made from employee wages.

Extended Definition

After tax deductions are payments that are automatically deducted from employees' post-tax income (the amount that remains after payroll taxes have been deducted and pre-tax deductions from paychecks have been made). The voluntary deductions are done for benefits sponsored by employees, such as disability insurance and Roth 401k contributions. Employees can choose to stop voluntary payroll deduction benefits at any time of the year because after tax deductions have no effect on their taxable wages.

Meta Description

After tax deductions are made to the amount of employee wages that remain after payroll taxes have been deducted and pre-tax deductions have been made.

A Closer Look at After Tax Deductions

Employers can initiate pre-tax and after tax deductions from employee paychecks. Pre-tax deductions lower taxable wages as they occur before withholding the payroll taxes. This includes dental and medical premiums, parking fees, flexible spending accounts and 401k plans. Post tax deductions occur after withholding of payroll taxes, and do not have any impact on taxable wages. These deductions include union dues, Roth 401K, life and disability insurance, and charitable contributions.

An example of after tax deduction

The entries for both types of deductions are the same. The difference lies in the tax amounts deducted and the net employee pay as a result of this deduction. For instance, take employees who make $2000 and have 15% of their salary deducted for income taxes and another $100 towards an after tax credit union deduction. This amounts to taxes of $300 and a net pay of $1700.

Should the employees decide to change their deductions from the after tax to a before tax 401k deduction, the tax amount withheld will change. The $100 will be deducted from pay before calculation of taxes, with the tax being calculated on $1900. This will result in a deduction of $285, which will result in a specific net pay pending the 401(k) deduction. The employee can take home a bigger pay by changing the withholding to a before tax deduction.

Voluntary deductions: Employers are not legally required to offer voluntary deductions nor do they have to agree to them. All involuntary deductions, however, must be withheld from employee paycheck.

401(k) - Employees can choose to contribute a certain amount towards their 401(k) retirement plan every pay date. Employees can contribute a matching amount to their employees' 401(k). They have to adhere to the contribution limit (for each year) set by the government. The most common post-tax 401(k) plan sponsored by employers is the Roth 401(k).

Payroll deduction IRA: Another option employers can offer is the IRA (Individual Retirement Account) where employees need to fund their own accounts; this does not include an employer match. The contribution limit for IRAs is lesser than 401(k) plans. The payroll deductions can be post-tax or pre-tax.

Health insurance and additional coverage: Health insurance deductions can be after tax or pre-tax. Employers are not mandatorily required to offer health insurance to employees. They can pay a portion of the insurance or all of it. After tax deductions apply to employees who buy additional coverage with the employer-provided basic life insurance.


Insurance: A Guide

"Remember kids, I have life insurance" - Adam Savage

This is a guest article from Tatyana Levin

These days one must be financially savvy. Money is not easy to come by and should be managed carefully. With the availability of tools that make it easy to keep track of current events, the stock market, and even your own money, it would be almost a crime to not utilize these tools to make the best and most informed financial decisions. Unfortunately, the more there is, the more there is to keep track of. This applies both to tracking tools and money (the small curse within the comfort of having money to keep track of).

 The savvier ones of us dabble in investments, and the savviest make their living that way. The key is that they know what to invest in. Not magically, of course; investors do a significant amount of research to learn how to optimize their portfolios, but they have the understanding.

A grossly overlooked investment is insurance. This may be because is not typically referred to as an investment with the exception of whole life insurance that has a specific investment component within it. Webster’s defines the word “invest” as a commitment of money for a return and “insurance” as a guarantee. This makes insurance the safest type of investment, because your returns are guaranteed.  But returns are not always financial in the case of insurance. They can be, if there is an unforeseen accident, but the most certain return is the feeling of security.

Now there are many different types of insurance, and what you need depends on your current situation. Obviously you only need auto insurance, found using auto insurance leads if you have a car, and you only need renter’s insurance if you rent and have possessions that you would need insured. Insurance is for those who have something to lose. With an attachment to something, either emotional of physical (or dependence, not like physically being glued to your car), comes the fear that it will be damaged or ruined in some way. For example, if your house caught on fire, you would be devastated. What would add insult to injury is not having a way to recover from this horrible disaster.

 These types of examples are not unique to this article. That is the way that insurance is sold. As they say that clichés are clichés for a reason, insurance is promoted this way for a reason.  The foundation of the concept of insurance is uncertainty, and it is the same uncertainty that is conjured up when investing.

The main difference between insurance and investment is that not having insurance creates a feeling of uncertainty while investments by nature are uncertain. Therefore, investing in insurance creates security and is the only secure investment that exists (and is legal). Getting insurance should be one of the easier financial tasks if you apply all the resources available with technological advances like smart phones.

About the Author: This article was written by Tatyana Levin, a copywriter for InsuranceFiles.com