Question; with tax advantages such as 401k or HSA does that mean that taxes will be paid after these are taken our Nd does this change the tax bracket? Thank you
Federal, State and City taxes are taken out after HSA and 401K contributions, assuming a traditional 401K contribution. So in that $100k salary example with a 10% 401K contribution it reduces income to $90K. Federal, State and City would be taken out of that figure. If HSA of $2K, then it further reduces income to 88K, and instead, Federal, Stare and City (if applicable) taxes would come out of this lower adjusted gross income. FICA taxes are taken out of gross income, meaning the full $100K. Contributions to retirement do not lower FICA taxes. And yes, 401K and HSA can move you into a lower tax bracket. Essentially part of your 401K money (if traditional) is funded by the tax bill in the year you contribute.
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Question; with tax advantages such as 401k or HSA does that mean that taxes will be paid after these are taken our Nd does this change the tax bracket? Thank you
Federal, State and City taxes are taken out after HSA and 401K contributions, assuming a traditional 401K contribution. So in that $100k salary example with a 10% 401K contribution it reduces income to $90K. Federal, State and City would be taken out of that figure. If HSA of $2K, then it further reduces income to 88K, and instead, Federal, Stare and City (if applicable) taxes would come out of this lower adjusted gross income. FICA taxes are taken out of gross income, meaning the full $100K. Contributions to retirement do not lower FICA taxes. And yes, 401K and HSA can move you into a lower tax bracket. Essentially part of your 401K money (if traditional) is funded by the tax bill in the year you contribute.