Allowances and Deductions allow users to choose the tax effect. Below is a description of how each tax category affects taxable income.
| Category | Description | Effect on Taxable Income | Examples | Specific Example |
| Before-Tax | Deductions or allowances taken from gross income before taxes are applied. | Reduces taxable income | Pre-tax retirement contributions (401k), pretax health insurance premiums | An employee earns $4000 monthly and contributes $400 to their 401(k) plan. The taxable income is reduced to $3600 before income tax is calculated. |
| After-Tax | Deductions or contributions taken from salary after all applicable taxes have been deducted. | Does not affect taxable income | After-tax contributions to a Roth IRA, disability insurance premiums. | An employee opts for a life insurance plan costing $50 monthly after-tax, deducted from their paycheck after tax calculation. |
| Taxable | Types of income or allowances that are subject to tax and added to the gross salary | Increases taxable income | Bonuses, car allowances, non-qualified moving expense reimbursements. | An employee receives a $500 bonus for meeting sales targets, which is added to their gross income and taxed accordingly. |
| NonTaxable | Types of income or allowances that are not subject to tax and may be exempt or specifically excluded. | Does not increase taxable income | Health benefits, employer contributions to health savings accounts (HSA), certain employee gifts, business expense reimbursements that meet IRS guidelines. | An employee is reimbursed $300 for business travel expenses, which does not affect their taxable income. |
| Taxable Deductions | Deductions taken from the gross income but do not reduce the amount of income subject to tax. | Does not reduce taxable income | Certain country-specific social security contributions, unique health premiums. | An employee has 4% of their $1000 gross income deducted for social security, amounting to $40, but their taxable income remains calculated on the full $1000. |