Expert: Shirley McAllister, CPP, PHR - 7/4/2010

Question
QUESTION: Can you tell me if there is a specific order to pretax deductions?  Example do i deduct 401k and the medical or vice versa or doesn't it matter.

Thanks

ANSWER: Payroll deductions are taken in a priority order: FICA, Federal Taxes, State Taxes, conditions of employment deductions such as retirement, mandated deductions, health insurance deductions and voluntary deductions.

Here is how I prioritize in my company.

Fica/Medicare
Federal Taxes
State Taxes
Local Taxes
Health Insurance
Child support/garnishment
Other Garnishment/levy
Retirement
voluntary deductions

Shirley

---------- FOLLOW-UP ----------

QUESTION: Thanks Shirley.  If I have pretax medical and 401k and I deduct the 401k before the insurance I have a greater contribution than if I take it after the insurance.  I think I have to deduct the insurance and then the 401k from that balance  ie.  1000 less 100 for medical then 90 (10% contribution) = $810 gross for federal tax  or $1000 less 100 (10% contribution)- 100 medical = $800 gross for federal tax - Is there something that says I must do it one way or another

Thanks

Answer
No there is nothing that says you must do it one way or the other, however, if the employee does not have enough to pay medical insurance because of a prior deduction than you could have a problem. As long as the employee has enough to cover everything you are fine.

Shirley