A 401 Defined Contribution Plan is a retirement plan that is "qualified" under section 401(a) of the Internal Revenue Code. Each participant has a plan account to which contributions are made. Plan benefits are based on the total amount of money in your account at retirement or other eligible event. As a qualified plan participant, an employee is not taxed on employee contributions nor upon earnings until they are withdrawn, usually at retirement when you may be in a lower tax bracket.
Pre-tax contributions are not subject to federal taxes. The full amount of an employee's pre-tax contribution is deducted from their income for tax purposes. This results in a decrease in their taxable income. In addition, an employee's take-home pay will be greater than if they made contributions with after-tax dollars. After-tax contributions are subject to current federal and state taxes and withholding. The full amount of an employee's contribution is deducted from their pay after all withholding is calculated.
All employee contributions are subject to Social Security taxes, where the employer is a participating member of the social security system.