I purchased group term life insurance through my employer. I was told it will save me a lot of money since it will be pre-tax deducted from my paycheck.
In: 3
You are taxed based on your income. The higher your income the more you are taxed.
Certain types of spending, like charitable giving, are not counted as part of your income and therefore lower your tax burden.
If you make $65,000 and give $1,000 to charity you’ll be taxed as if you earned $64,000.
For easy numbers you get paid $100 and taxed 20% for a take home pay of $80. If you by a $10 necessity you have $70 left. If you by the by the same necessity pre tax you would be taxed on the remaining amount, so $100 -$10 = $90 of taxable income. You pay 20% on that and end up with $72.
Note that buying something pre-tax ONLY saves you money if you already wanted/needed the thing. Buying insurance pre-tax won’t save you money if you don’t want the insurance, it’s just cheaper than if you bought it post-tax.
In the US
Be aware that some things are “tax deductible” all the time, but other things are only tax deductible if you “itemize” deductions, or rather, if you don’t itemize deductions then you don’t get that particular tax benefit. People EITHER take a “standard deduction” of a flat amount to deduct from their income for general living expenses of sorts, or they itemize their deductions and make a list of things that are deductible (charitable donations, medical expenses, mortgage interest, etc). If the itemized list is less than the standard deduction, then people just take the standard deduction.
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