What Are Post-Tax Deductions from Payroll?

Payroll is not only about distributing paychecks based on worked hours; it involves managing various deductions. Among these deductions are taxes, pre-tax deductions, and post-tax deductions from payroll.

You will need to care about post-tax deductions after you conduct pre-tax deductions.

Let's delve into the differences between pre-tax and post-tax deductions and find out how they are calculated!

Pre-Tax vs. Post-Tax Deductions

Pre-tax deductions: These are amounts subtracted from employee pay before taxes are calculated. By reducing taxable wages, pre-tax deductions help lower the overall tax owed.

Post-tax deductions (or after-tax deductions): Unlike their pre-tax counterparts, post-tax deductions are taken from employee pay after taxes have been calculated. These deductions do not affect taxable wages or the amount of tax owed.

Both pre-tax and post-tax deductions are voluntary, allowing employees the choice to participate as there is no legal requirement for their provision.

Post-Tax Deductions from Payroll

Here's a list of common post-tax deductions from payroll:

• Roth 401(k) contributions: Contributions made to a Roth 401(k) retirement savings account are typically post-tax deductions.
• Charitable donations: Donations made to charitable organizations are usually post-tax deductions.
• Union dues: Membership dues for labor unions are commonly deducted after taxes.
• Garnishments: Court-ordered deductions to satisfy debts, such as child support or creditor garnishments, are post-tax deductions.
• Uniforms and work-related expenses: Costs associated with uniforms or job-related expenses that employees pay for are often deducted after taxes.
• Health Savings Account (HSA) contributions: Contributions to an HSA may be post-tax, depending on the employee's HSA structure.
• Disability insurance: Premiums for voluntary disability insurance are typically post-tax deductions.
• Life insurance: Contributions towards certain life insurance policies may be deducted after taxes.

Garnishments

Garnishment is the method of collecting money from a person with overdue debts. This is a little more complicated than other post-tax deductions mentioned above. The main difference between garnishments and the rest of the post-tax deductions is that they are not voluntary. They are ordered by the court and have to be withheld.

Debts that may result in garnishment commonly include:

• Taxes
• Credit cards
• Medical bills
• Child support
• Student loans

Post-Tax Deduction Example

You pay Jen $700 per week. Here is how post-tax deduction could look like for your employee:

1. Calculate FICA Tax (7.65%):

FICA tax for Jen: $700 x 0.0765 = $53.55.

Adjusted wages after FICA: $700 - $53.55 = $646.45.

2. Calculate Federal Income Tax:

Federal income tax (using IRS tables): $35.00.

Adjusted wages after federal income tax: $646.45 - $35.00 = $611.45.

3. Calculate Roth 401(k) Deduction (6%):

Roth 401(k) deduction: $700 x 0.06 = $42.00.

Adjusted wages after Roth 401(k) deduction: $611.45 - $42.00 = $569.45.

Jen’s final take-home pay, after accounting for FICA tax, federal income tax, and her post-tax Roth 401(k) deduction, is $569.45 for the week. This represents the amount she receives in her paycheck after these deductions have been applied to her $700 earnings.

Bottom line

Withholding post-tax deductions can be complex for small business owners. Instead of manually handling these calculations, consider using payroll solutions like PayStubs.com. 

This platform will automate the calculation process, providing an efficient and accurate solution for managing post-tax deductions based on the provided information. Try it now and simplify your payroll processes with the assistance of modern payroll solutions.