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Eagle10

Tsa And Paycheck

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Hello - this may seem like a no brainer but I have been reading the posts about 403b and TSA. What I can't seem to understand is the calculation for how much is taken out of the paycheck with a pre-taxed vehicle like a 403b or TSA. Let's say that I am putting away $50 a paycheck. Should I see an exact $50 come off the check or should I see a little less than that since its pre-taxed? I am trying to make this clear and hope I am doing so.

 

Also, my paycheck says TSA. Should it say 403b? This is why teachers have a hard time with this topic, it can be so confusing yet so simple. Thanks for any and all help.

 

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If I understand your question correctly, your social security wages are lowered by the contribution amount

of the investment. So if you put 50.00 a month a way your check stub would indicate fifty dollars invested

in pre tax dollars. Cumulatively, per year your year to date totals would show 50.00X 12=600.00. Your taxable income would not include that 600.00

 

 

However, you may actually be noticing less than that 50.00 deducted from your net pay

because the amount you invest is pretax so it may put you in a lower tax table.

 

 

 

I hope this helps.

 

 

 

Tony

 

 

Also, don't be concerned if the paycheck reads TSA and you are investing in a 403B(7). My school district just recently got it right. TSA is still a catch all phrase.

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You may want to double check on this, but I'm of the opinion that FICA (social security/Medicare) taxes are based on gross income and are not affected by a salary reduction contribution. (However, contributions to a section 125 cafeteria plan generally do reduce FICA wages.)

 

However, your paycheck should be reduced by an amount slightly less than the $50 contribution by virtue of reduced withholding taxes. For example, assuming a monthly income of $1,500 and your federal withholding allowances are based on a single taxpayer with one withholding allowance, your income subject to withholding would be $1,500.00 - $291.67 = $1,208.33 without the contribution or $1,450.00 - $291.67 = $1,158.33 with the pre-tax contribution of $50.00. (The $291.67 deducted is the exclusion allowed for the aforementioned withholding allowance.)

 

Withholding at this income level, based on single rates, is $63.70 pluse 15% of the excess over $858.00. Thus, without the contribution, federal withholding will be $116.25. With the contribution, withholding will be $108.75. Thus, the $50.00 contribution results in a reduction of federal income tax withholding of $7.50. So, your net check will be reduced by your $50.00 contribution, and increased by the reduced federal withholding, resulting in a net reduction of $42.50.

 

If you live in a state where there are state income taxes withheld from your pay, your state income withholding may also be reduced. However, in some states, withholding is not affected by a pre-tax 403(b) contribution, so you'll have to check on that. Also, other pre-tax contributions will reduce your taxable income in the above calculations.

 

I hope this is of some benefit to you.

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OOPS. Michael is correct. On your w-2 form Line one, wages, Tips and compensation, are reduced by your contribution for the year. Line 3, your social; security wages show your actual total wages. It would make no sense to reduce your social security wages as this would lower your income and thus your retirement social security benefit.

 

 

Sorry for any misunderstanding.

 

 

Tony

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OOPS. Michael is correct. On your w-2 form Line one, wages, Tips and compensation, are reduced by your contribution for the year. Line 3, your social; security wages show your actual total wages. It would make no sense to reduce your social security wages as this would lower your income and thus your retirement social security benefit.

 

 

Sorry for any misunderstanding.

 

 

Tony

 

 

Under IRC 3121(a) all salary reduction contributions taken out of an employee's pay for pension benefits, e.g., 403b and 401k, are subject to FICA tax. Employer contributions to these plans are exempt from FICA tax. FICA tax does not apply to pre tax employee contributions to pay for health insurance or flexible spending accounts.

 

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