Operational Guide
Pre-Tax vs Post-Tax: The Deduction Order
The order in which money leaves your paycheck determines your tax bill.
The Waterfall Model
Your paycheck flows through a specific logic gate system:
Starts At:
Gross Pay
Minus:
Pre-Tax Deductions
401k, Health Insurance, HSA, Commuter Benefits.
Equals:
Taxable Wages (The number on your W-2)
Minus:
Taxes
Federal Withholding, Social Security (FICA), Medicare, State Tax.
Minus:
Post-Tax Deductions
Roth 401k, Union Dues, Garnishments, Life Insurance.
Equals:
Net Pay (Direct Deposit)
Why It Matters
Maxing out Pre-Tax deductions (like HSA and Traditional 401k) lowers the "Taxable Wages" tier, resulting in lower Federal and State taxes.