How to Subtract Your Pretax Deduction From Gross Pay
Pretax deductions allow you to reduce the amount of income that you pay in taxes because your employer does not calculate your withholding until after it subtracts 401(k) contributions, contributions to a health savings account and possibly your health and dental premiums from your gross pay. These deductions only affect your income taxes; your employer must use your total gross earnings to calculate your Social Security and Medicare taxes. Pretax deductions can lower the amount some employees receive after retirement -- especially those nearing retirement age -- because they lower the taxable income amount that employers such as the state of Colorado use to determine employee pensions.
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Instructions
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Inspect your pay stub or ask your employer how much your pretax deductions are. While this amount can change yearly due to changes in your employer's plan, it typically remains consistent throughout the year.
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Calculate your wages if you are not a salaried employee. Multiply the number of hours you worked in a pay period by your rate per hour. For example, if you worked 40 hours making $20 per hour, your gross pay is $800.
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Subtract your pretax deduction from your gross pay. For example, if your pretax deduction for health insurance is $80 per pay period and your pretax deduction for dental insurance is $20 per pay period, using the wages above, your gross pay is $700 after subtracting your pretax deductions.
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Tips & Warnings
Your employer calculates the income tax you owe based on your gross pay after subtracting your pretax deductions. For example, if you are in the 15 percent tax bracket, it will multiply 0.15 by $700 to withhold as much as $105, depending on your withholding.
Employers base Social Security and Medicare withholding using your gross pay without any subtractions. Using the above wages, your employer will multiply 4.2 percent by $800 to determine your Social Security withholding and 1.45 percent by $800 to determine your Medicare withholding.
