Understanding Payroll Deductions

Your salary is one of the first things you want to know when you start a new job. Unfortunately, you might be in for a big surprise when you open your first paycheck thanks to mandatory and voluntary payroll deductions. Understand exactly what these deductions as you eliminate paycheck surprises and balance your personal budget.

Mandatory Payroll Deductions 

Employers are required by law to withhold several deductions from your paycheck. If they do not comply, they face fines, lawsuits and the potential end of their business.

The mandatory payroll deductions on your pay stubs include:  

  • Federal income taxes, every employee in the United States pays the same federal income tax
  • State taxes that vary based on the state in which you are employed
  • Local taxes if required by your town or municipality
  • Court-ordered withholdings for child support, bankruptcy repayment or other required wage garnishments

Your employer may also deduct Federal Insurance Contributions Act (FICA) taxes. These taxes include a mandatory 6.2 percent social security tax and 1.45 percent Medicare tax. If you make more than $200,000, expect to pay more than these percentages. Also, remember that your employer contributes matching percentages, and these taxes apply to all employees who work in the U.S.

Voluntary Payroll Deductions

Other payroll deductions are not mandated by federal law. However, most of them are convenient for your employer or for you.

You can ask your Human Resources department for details of these voluntary deductions and then decide if you want to participate or not. They include:

  • Your required contribution to your employer-provided insurance benefits, including healthcare, dental or vision coverage, if you choose to participate in your employer's insurance coverage plans
  • 401(k) contributions beyond your employer's matching contribution
  • Premiums for additional coverage on an employer-sponsored life insurance policy
  • Charitable donations to the United Way or other eligible organization

How are Payroll Deductions Determined?

The amount of salary you receive for doing your job is known as your gross pay. Mandatory and voluntary payroll deductions are taken out of your gross or total pay, and the remaining money is what you receive on your paycheck. The remaining balance is known as your net pay and is the figure you'll see on your paycheck.

Payroll deductions affect every paycheck you receive. Check every pay stub you receive to verify that the deductions are correct. If you need additional clarification or information about mandatory or voluntary payroll deductions, talk to your Human Resources manager and eliminate paycheck surprises.

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