A post-tax deduction is an example of a payroll deduction that is subtracted from an employee’s paycheck after all necessary taxes have been withheld, including FICA taxes like Social Security and Medicare tax, federal tax, state tax, and local income tax. Post-tax deductions are sometimes referred to as after-tax deductions.
TABLE OF CONTENTS
- Post-tax deductions or after-tax deductions are payroll deductions that are subtracted from a taxpayer’s paycheck after the required taxes have been withheld.
- Post-tax payroll deductions include wage garnishments, retirement contributions such as Roth 401(k), 529 college savings plans, union dues, employer-sponsored pension plans, charitable contributions, disability and other applicable life insurance policies, and job-related expenses.
- Most errors in payroll deductions involve employers wrongfully charging their employees for services they should be paying for, including federal unemployment tax (FUTA), personal protective equipment (PPE) required by OSHA, state unemployment tax, tools necessary for work tasks, and workers’ compensation insurance.
What Is A Post-Tax Deduction?
Post-tax deductions are payroll deductions that are subtracted from a taxpayer’s paycheck after the required taxes have been withheld. These after-tax deductions reduce an individual’s net pay as opposed to their gross pay, so they will not lower their overall tax burden.
Examples of Post-Tax Deductions
Depending on the type of deduction for payroll taxes, post-tax deductions may be considered a required or voluntary deduction.
Required Post-Tax Payroll Deductions
Wage garnishments are post-tax deductions that are non-optional for the taxpayer. A regulatory agency such as the court or IRS may issue a wage garnishment on an employee’s paycheck if they have outstanding tax debt, such as from child support, alimony, student loans, and medical bills. The wage garnishment order should outline what percentage of the earnings or exactly how much money should be included in the withholdings from each paycheck.
- Hourly wages
- Sales commission
- Bonus payments
- Pensions and retirement plan payments
Voluntary Post-Tax Payroll Deductions
Some of the optional payroll deductions that can be subtracted from a taxpayer’s income after taxes have been withheld include:
- Retirement contributions such as Roth 401(k)
- 529 college savings plans
- Union dues
- Employer-sponsored pension plans
- Charitable contributions
- Disabilities and other applicable life insurance policies
- Job-related expenses.
Examples of Payroll Deduction Errors
Most errors in payroll deductions involve employers wrongfully charging their employees for services they should be paying for. Some of these include:
- Federal unemployment tax (FUTA)
- Personal protective equipment (PPE) required by OSHA
- State unemployment tax
- Tools necessary for work tasks
- Workers’ compensation insurance
Guideline for Calculating Post-Tax Deductions
While it can be complicated to understand, as long as they keep thorough records of their financial information, taxpayers can calculate their estimated post-tax deductions. Here is a general guideline for calculating post-tax deductions:
- Adjust the gross income by multiplying the FICA tax rate by the gross income.
- Utilize your Form W-4 and IRS tax tables to determine your deduction percentage and multiply this percentage by the gross pay.
- Subtract 7.65% of the adjusted gross pay for FICA tax withholdings.
- Deduct additional taxes from the new total where required.
- Subtract state income tax if applicable.
- Subtract post-tax deductions from the total to determine the total take-home pay.
If you have any trouble navigating these calculations when determining your tax liability, consulting with tax professionals at Ideal Tax can help you streamline the tax filing process and maximize your tax benefits.