Pre-Tax Deductions Law and Legal Definition

Pre-tax deductions are deductions that can be used to discount the amount of taxable wages a person will owe taxes on. If these deductions are not made, individuals may owe taxes on their gross wages. Rather than income tax, pre-tax deductions may affect taxes for Social Security and Medicare. Pre-tax deductions are designed to create an incentive for people to be responsible with their money and plan ahead for certain eventualities. Pre-tax deductions are also used when the employee is investing in a retirement savings account.