Pre-Tax Deduction
Definition
A deduction taken from gross pay before income tax is calculated, such as certain retirement or health contributions, which lowers taxable wages. Post-tax deductions are taken after tax is computed.
Related Terms in Payroll
Payroll Accrual
Recording wages earned by employees but not yet paid at period end as an expense and a liability, so the cost falls in the period the work was done rather than when pay is disbursed.
Leave Encashment
Payment to an employee for accumulated unused leave, either during service or at exit. Its tax treatment varies by jurisdiction and by whether it is paid on retirement.
Bonus Accrual
Setting aside the expected cost of employee bonuses over the period they are earned, rather than only when paid, so profit reflects the true cost of the work performed.
Direct Deposit
The electronic payment of wages straight into an employee's bank account on payday, instead of by cash or cheque. It speeds up payment and reduces handling cost and error.
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