If you're employed, you're probably aware that between all of the voluntary and involuntary payroll deductions, your take-home pay is always less than what your actual salary or hourly wage is. When you choose or are required to join a labor union, payroll deductions for union dues lower your take-home pay even further. Although you might be able to deduct union dues on your taxes, they don't qualify as pre-tax payroll deductions.
Voluntary and Involuntary Payroll Deductions
Certain payroll deductions are voluntary or within your control, such as for health and dental insurance premiums. Others, such as Medicare, Social Security and income taxes and garnishments for unpaid debts, are involuntary, meaning your employer has no choice but to withhold them from your paychecks. Even if your employer requires membership in a union, deductions for union dues are typically treated as voluntary payroll deductions.
The Benefit of Pre-Tax Deductions
A large number of voluntary payroll deductions come out of your paycheck on a pre-tax basis, which is beneficial since it reduces the amount of your income that's subject to tax. Union dues, however, are after-tax deductions, meaning tax is calculated and withheld on your wages first before the dues are paid.
For example, suppose you earn $4,000 per month, have payroll deductions of $250 for health insurance, $100 for 401(k) contributions and $50 for union dues. Since the $350 combined health insurance and retirement account contributions are deducted on a pre-tax basis, income taxes are calculated only on $3,650 of the $4,000 you earned. As an after-tax item, the $50 in union dues is deducted from the balance that remains after the appropriate amount of income tax is withheld.
However, certain pre-tax deductions, like 401(k) contributions, are included as income for the purpose of calculating your Social Security and Medicare taxes, but not income taxes.
Deducting Your Union Dues
Since union dues are after-tax payroll deductions, you have the opportunity to claim them when filing your taxes. Union dues are deductible only if you itemize on Schedule A in lieu of taking the standard deduction. You can only deduct union dues, membership fees and assessments to provide payments to unemployed union members. You cannot deduct the portion of any fees that are used to provide sick, accident and death benefits to union members, nor can you deduct the contributions you make to a union pension fund.
Limitations on Your Write-Off
Just because an expense is deductible doesn't necessarily mean you'll see it deducted on a return, which can be the case with union dues. When itemizing on Schedule A, union dues are reported in the Job Expenses and Certain Miscellaneous Deductions category – the total of which is only deductible to the extent it exceeds 2 percent of your adjusted gross income, or AGI. Therefore, reporting an AGI of $50,000 means the first $1,000 (2 percent of $50,000) of union dues and other expenses you report in this category is nondeductible.
- University of North Carolina Asheville: Payroll Deductions
- University of Minnesota: Before-Tax and After-Tax Deductions
- Colorado State University: Pre-Tax vs. Post-Tax Deductions
- Internal Revenue Service: Publication 529 – Miscellaneous Deductions
- Internal Revenue Service: Instructions for Schedule A (Form 1040)
This article was written by Legal Beagle staff. If you have any questions, please reach out to us on our contact us page.