Your Paycheck – After-Tax Deductions

Why this should interest you?

It can lower your take home pay!

After-tax deductions are subtractions from your income after taxes are computed, therefore lowering your net income. An example of an after-tax deduction is a contribution to a Roth 401(k) retirement plan or buying into a company sponsored share purchase program (ie, buying the stock of the company you work for automatically each month).

I will use the same example from my before-tax post but change the retirement plan contribution to a share purchasing program. Again assume no other tax except federal withholding, no social security, medicare, state, local, etc.

Joe, a single male, is a video game tester and has a gross income of $2,000/month, this also happens to be his taxable income. In this instance Joe has $238.33* withheld from his pay check each month for federal taxes, leaving him with a net income of $1,761.67 ($2,000-238.33).

Next month Joe’s boss announces the company will begin offering the option to contribute to a share purchase program. Joe decides to take part and contribute $100 a month. His gross income is still $2,000/month which is still his taxable income. Federal tax withholding remains $238.33* but net income has now decreased to $1,661.37 ($1,761.37-$100) prior net income last month less the $100 contribution to the share purchase program.

After-tax deductions as you can see are fairly straight forward.

*Federal tax withholding computed using the federal tax withholding table in the post Federal Tax Withholding. Remember to convert monthly gross income to an annual amount 1st.