# How to compare pre-tax and post-tax expenses?

I'm trying to compare health insurance plans. If one plan allows me to pay \$X before taxes, and one costs me \$Y after taxes, how much greater must X be than Y in order for them to cost me "the same" in real terms? Assume I'm neither dirt poor (and thus not paying taxes) or in the top 1% (where taxes get really weird).

We've had a couple questions on this before, but they seem really specific, and I'm looking for a general guideline to help me convert numbers while doing a detailed comparison now and in the future.

Here's the basic equations: the key is to figure out which 'side' (pre- or post-tax) you want compare in and get everything to that.

Post-Tax Amount --> Pre-Tax:

If you are going to pay \$100 after tax, then to compare it as a pre-tax amount, you need a tax rate...

Ballpark your tax rate. Withholding rates are a good place to start, but has others pointed out in the comments, this will just be an estimate. Look at your last paystub, and divide the total withheld for Federal and State taxes by the total you were actually paid that period (not the check amount).

For simplicity's sake, let's say that's 20%.

Then in theory you would be willing to pay

\$100 / (1 - 0.2) = \$125.

The formula would be (Post Tax)/ (1 - tax rate) = Post Tax.

Pre-Tax Amount --> Post-Tax

Just do a bit of algebra and flip the formula above.

Pre-tax Amount * (1 - rate) = Post Tax Amount

• Mightn't a marginal tax rate be more appropriate than an average one? Nov 25, 2013 at 19:05
• @THEAO - Sorry - I don't believe pre-tax means pre FICA. And as Chris said, this issue at Federal and State is at the margin, not average. Nov 25, 2013 at 22:44
• @JoeTaxpayer, that's fair enough... I'm surprised that you guys took me to task on that, and not on the fact that I did the math wrong. But thanks for the feedback. On the one hand, I did just say to try to ballpark it. If someone is asking here for the formulas for it, I'm guessing that they're not going to be doing a nuanced-enough analysis to have the difference between a marginal and average tax rate matter. On the other hand, SSI deductions and Medicare definitely don't need to be in the rate. Nov 26, 2013 at 8:48