Pre-Tax vs After-Tax
Eligible employees may elect to have certain benefit expenses deducted from their paycheck on a pre or after-tax basis in accordance with IRS regulations. Pre-tax elections are irrevocable within the plan year for which they are made unless you experience a mid-year qualifying event. Simply put, pre-tax means that premiums are deducted before taxes are calculated and deducted; after-tax means that premiums are deducted after taxes is calculated and deducted.
Human Resources does not provide tax advice or consultation, any questions about your individual situation should be directed to a tax advisor or the Internal Revenue Service (IRS).
With a pre-tax election, benefit premiums are deducted from your gross pay before Medicare, Federal, and State taxes are calculated thus reducing your tax liability.
The impact of pre-tax deductions for insurance premiums and Flexible Spending Accounts (FSA) on your retirement plan depends on whether you are enrolled in the DCP or PERA.
- DCP: not affected by pre-tax deductions.
- PERA: amounts deducted on a pre-tax basis for insurance premiums and FSAs are not considered “inclusive salary” for reporting purposes to PERA and may affect your retirement highest average salary calculation. These amounts reduce your salary reported to PERA and the resultant employee and employer PERA contributions are adjusted accordingly. Contact PERA for more information on how this may affect you.
With an after-tax election, benefit premiums are deducted from your pay after Medicare, Federal, and State taxes are calculated and does not reduce your taxable gross salary. After-tax elections have no impact on your mandatory retirement plan.
For Faculty and Administrative Professionals, your monthly income replacement benefit under LTD is not taxable.
Eligible Pre and After-Tax Deductions
|Pre or After-Tax||Pre-Tax||After-Tax|
|Medical||Flexible Spending Accounts (FSA)||Long Term Disability|
|Dental||Health Savings Account (HSA)||Short Term Disability|
|Vision||Mandatory Retirement Plans (DCP and PERA)||Personal Accident (AD&D)|
|Voluntary Retirement Plans |
403(b), 401(k), 457
|Parking Permits||Voluntary Life (Employee, Spouse, Child)|