Final answer:
The deductible amounts are expenses subtracted from an employee's gross income before taxes. Deductions include Social Security, Medicare, and other taxes. Defined contribution plans, like 401(k)s, provide tax-deferred retirement investments.
Step-by-step explanation:
The deductible tax deductible amounts refer to specific expenses that can be subtracted from an employee's gross pensionable or taxable income before income taxes are levied. Deductions often include advance payments of income tax, contributions to social security, and payments for various insurances like unemployment and disability. Taxes paid by the employer, based on an employee's wages, are part of the employer’s contributions to social security and other insurance programs.
When calculating deductions for an employee, a portion of the gross annual income goes towards Social Security (6.2%), Medicare (1.45%), and federal and state taxes (assume 15%). Taxable income is determined by taking the adjusted gross income and subtracting deductions and exemptions, and various tax credits may also apply, reducing the total tax liability.
Defined contribution plans like 401(k)s and 403(b)s, which have largely replaced traditional pension plans, offer tax-deferred contributions from both the employer and employee. These contributions can be invested in a range of vehicles and are portable across employers, providing retirement funds that are not subject to inflation costs like traditional pensions.