pre-tax
Money taken from your pay before tax is worked out.
Amounts excluded from taxable wages before withholding is computed.
What that means in practice
Contributions to some retirement and health plans come out first, which lowers the income your tax is calculated on. So putting a dollar into one of these costs you less than a dollar of take-home pay. That discount is exactly your marginal rate.
Pre-tax elections reduce the wage base for income tax and, in some cases, for payroll tax as well. ⚠️ The two treatments differ by plan type and the distinction materially changes the value of the election. Effective cost to the employee equals the nominal contribution less the marginal rate applied to it.
Questions people ask
Does this change depending on which state I live in?
Federal, and therefore uniform. Moving between states changes a great deal about a paycheck; pre-tax is not part of it.
Do I need to understand other terms before this one makes sense?
Usually, yes. pre-tax sits in a small cluster of related ideas rather than standing alone. The linked terms below are the ones it leans on. Reading it in isolation causes most of the confusion about it.
I have seen this called something else. Is it the same thing?
Same thing, different label. pre-tax has more than one common name, and the page lists them precisely because searching the wrong one leads nowhere.
Is this determined federally or by jurisdiction?
Payroll taxes are levied under federal law and apply uniformly across jurisdictions. Rates and thresholds are set by statute and adjusted annually where indexed. State income tax is separate and additive; it does not modify the payroll computation.
What conceptual dependencies does this term carry?
This term has multiple conceptual dependencies, enumerated in the related-terms list. Definitions in tax law are frequently mutually referential — a provision's meaning depends on defined terms elsewhere in the code — so isolated reading commonly produces error.
What alternative designations refer to this concept?
This concept is referred to by multiple designations across statutory text, agency guidance, payroll documentation and common usage. The alternatives are enumerated on this page. ⚠️ Terminology divergence is a frequent source of error where a statutory term and its colloquial equivalent are not exactly co-extensive.