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What is After-Tax Deduction?

After-tax deductions, also known as post-tax deductions, are deductions to gross pay (your employees’ pay before any deductions are taken) after the required taxes are subtracted. The money remaining that your employee receives from their paycheck is called net pay.

The most common types of deductions include:

  • Before-tax deductions or contributions 
  • City, state, and/or federal taxes 
  • After-tax deductions or contributions

Some of the most common after-tax deductions include retirement contributions and wage garnishments. Let’s take a look at wage garnishments.

Wage Garnishments

If you have an employee who has been court-ordered to make payments on something such as restitution or child support, these funds, known as wage garnishments, can be directly taken from the employee’s wages. Wage garnishments are normally taken after tax.

Other common after-tax deductions include dues (such as union dues), donations (such as local charities), and college savings contributions.

Running a practice can be tough – you’re not alone in thinking that calculating payroll deductions is a sticky business. A CPA can assist your practice and ensure you maintain financial compliance. Navigating workplace politics tends to make things even tougher, but keeping open lines of communication is one of the greatest advantages you can add to your practice. Have a question? Consider an HR consultation with us today.

Standard After-Tax Deduction – To take or not to take?

This is a question you and your employees face at tax time. When filling out a tax return, employees must decide whether they’ll claim the standard deductions or if they want to itemize their deductions. This is a highly personal decision. Of the two, standard deduction claimants don’t have to itemize anything or retain any receipts for the year.

Standard After-Tax Deduction Amounts

The amount of standard after-tax deductions varies each tax year and is calculated using the following information about the filer:

  • Gross income
  •  Age
  •  Filing status
  • Qualifying as blind
  •  Marital or widowed status

As of 2020, standard deductions follow this schedule

Related Reading:  Do you practice in California? Take a look at whether California’s AB5 law applies to your practice.

When Standard After-Tax Deductions Can’t Be Used

Usually, taxpayers can decide if they want the standard deduction or if they want to claim their expenses item-by-item. In some cases, however, claiming the standard deduction isn’t allowed, such as:

  • Married filing separately when a spouse files itemized
  • Filing a return that covers less than a full year, such as a business filing quarterly returns
  • Non-residents and dual-status aliens – unless the employee is married to a citizen or resident alien and files as a resident of the United States
  • Estates, trusts, trust funds, and other partnerships

Did you know that we at HR for Health monitor all the specific laws and regulations that affect your practice? If you have questions about compliance issues, please reach out to us. Schedule a call, call (877) 779-4747, or email compliance@hrforhealth.com now to learn more.

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