how does pre-tax deductions work and how does it save money?

Question

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

Answer 1

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.