Before tax deduction

Before-tax deductions are a type of deduction that allows employees who are paid on a net basis to reduce their gross income before calculating federal income tax. The most common types of before-tax deductions include 401(k) contributions, health insurance premiums, and dependent care expenses.

The main benefits of before-tax deductions are that they can reduce your taxable income, which means you will pay less in taxes when you file your federal return. However, there are also disadvantages to a before-tax deduction. For example, money spent on before-tax deductions cannot be used to offset the Alternative Minimum Tax (AMT).