What the heck does “pre-tax” really mean? | blooom

To your benefit, the IRS is now only able to tax you on $45,000, NOT your $50,000 salary. This is because your 401k contribution is taken from your paycheck pre-tax. (Note: Pre-tax does not mean you avoid any FICA taxes. You may owe Social Security and Medicare tax, for example. FICA taxes are based on gross pay.)

To Now Illustrate The Benefit to You, Here is How The Math Works:

$50,000 taxed at 20% = 10,000 in Federal taxes


$45,000 taxed at 20% = $9,000 in Federal taxes

So not only have you socked away badly needed...

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