All About Payroll Deductions
By Robert Bennett
, last updated December 22, 2011
Payroll deductions are any amount of money withheld from employee’s earnings. The government requires by law certain payroll deductions while others are voluntary.
All U.S. employers are required by law to withhold statutory deductions from an employee’s paycheck. Statutory deductions include federal income tax, social security tax, Medicare tax, state income tax and any local tax withholdings. Federal withholding taxes are calculated using the filing status and number of exemptions on the W-4 form completed by the employee. The same calculations are used for state withholdings for states with a state tax. FICA tax is a combination of social security and Medicare. FICA is a flat rate of 7.65% until earnings reach $102,000 then it is 1.45%. By law, court mandated garnishments must be withheld too. These include child support, alimony, delinquent student loans and IRS payments with the amount set by the court.
There is also a group of deductions called voluntary deductions. Voluntary deductions are deductions the employee requested to be withheld from their paycheck. The deductions are optional and require a written consent from the employee. Typically, these are for benefits offered by the employer. Voluntary deductions include health, dental and life insurance premiums, flexible spending plans, retirement and stock purchase plans. Typically, voluntary deductions are deducted from the paycheck prior to calculating the amount of statutory deductions.
Miscellaneous deductions are other voluntary deductions taken after statutory deductions are calculated. These are credit union deposits, meals, dues, US Savings Bonds and charitable contributions.
An employee can change or stop voluntary deductions although the employer may specify a time period when deductions can be modified. Social security and Medicare withholding cannot be changed and wage garnishments can only be stopped with a court order or by correspondence from the issuing institution.
All deductions are required to be itemized on the stub of the paycheck. At the end of the year, the W-2 form will provide year-to-date totals for all earnings and deductions.