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State Pay And Taxes

Pre and Post Tax Retirement Contributions:

When calculating your effective tax rate, the types and amounts of your monthly (or bi-monthly) deductions need to be factored in. Some deductions are made pre-tax, and some are made post-tax.

CalPERS contributions, for example, are made pre-tax. This means that before calculating how much you ultimately have to pay in Federal and California State taxes, retirement contributions are first subtracted. If you had a monthly salary of $4,200 and a $300 CalPERS contribution, the adjusted salary used to determine how much you have pay in Federal and State taxes is $3,900 ($4,200-$300). If, in addition to your $300 per month CalPERS contribution, you contributed $100 each month to a 401(k), your taxable income would be $3,800 ($4,200-$300-$100).

The California Job Blog has an article on the Savings Plus 401(k) and 457(b) Plans.

When you receive a distribution from CalPERS or another tax-deferred account in retirement, it is treated as income and taxed accordingly. For most people, income in retirement is significantly less than during their working years. Income that is saved in a qualified, tax-deferred account during one’s working years and distributed in retirement can result in lower total taxes paid.

Tax Treatment of Other Deductions:

Medical, Dental and FlexElect contributions are considered pre-tax, which means they are subtracted before calculating how much you owe in Federal and California State income taxes. In addition to being pre-tax (Federal and State), medical, dental and FlexElect contributions are subtracted before calculating how much Social Security and Medicare tax is withheld from each paycheck.

Retirement contributions reduce Federal and State taxes, but they do not reduce withholding for Social Security, Medicare and CA SDI.

Deductions for Union Dues, Group Legal Services and Life Insurance are all post-tax, which means they won’t reduce your taxable income.

Taxes Vs. Withholding:

Each pay period, state employees receive a pay check. The amount of this check is your gross pay minus deductions. Among these deductions (which also include, retirement, health insurance and union dues) are Federal Tax and State Tax. But you aren’t technically paying Federal and State taxes each month. Taxes are only paid once a year.

For money earned in 2018, you will file your taxes by April 15, 2019. By this date you will have filled your taxes with the IRS and the California Franchise Tax Board. The amount you pay or get back is based on the total amount of money you earned in the year. The amount taken out from your paycheck each month isn't always a perfect amount and could differ from your final tax bill.

The Federal and State tax that is deducted from your gross pay each month is a withholding. Employers estimate how much money you will make for the entire year and withhold a proportional amount from your salary each month. If you end up making less than the original estimate, you could receive a refund. If you make more, you could end up paying an additional tax bill.

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