You know there are deductions to take out of your employees’ paychecks. But, are theypre-tax vs. post-tax deductions? What is withheld from an employee’s take home pay? What are payroll deductions? Read on to learn the different deductions you have to take out of each employee’s paycheck.

What are payroll deductions?

Payroll deductions are amounts taken out of an employee’s paycheck each pay period. An employee’sgross payis different than theirnet pay, or take home pay, because of the deductions subtracted. There are both mandatory and voluntary payroll deductions. Examples of payroll deductions include federal, state, and local taxes, health insurance premiums, and job-related expenses.

Mandatory payroll deductions

By law, employers are required to withhold payroll taxes from employee wages and submit them to tax agencies. These taxes are statutory employee deductions from payroll.Failure to pay payroll taxescan lead to penalization.

FICA tax and federal income tax are federally mandated taxes and must be reported onForm 941or944年形成. The taxes must be remitted electronically usingEFTPS(Electronic Federal Tax Payment System).

FICA tax

Federal Insurance Contributions Act (FICA) tax is made up of Social Security and Medicare taxes. Both the employee and employer contribute toFICA taxequally. Social Security tax is 6.2% of an employee’s income if it is at or below theSocial Security wage base. Medicare tax is 1.45% of the employee’sMedicare taxable wages. The total deduction for FICA is 7.65% from an employee’s paycheck. As the employer, you must also pay a 7.65% contribution.

工资税是什么我们ed for? FICA taxes cover public care.Social Securitygoes toward those who are retired, disabled, or to the families of the deceased. Medicare pays forhospital-related benefitslike hospice care and home health care.

Federal income tax

Federal income tax is calculated based on your employees’Form W-4以及其gr的信息oss pay. You can use the income tax withholding tables in the IRS’sPublication 15-Tto calculate the amount withheld from an employee’s paycheck.

Federal income taxes go towardpublic servicessuch as transportation, education, and the military.

State and local taxes

Each state has its own income tax structure. To find out how much you need to withhold from an employee’s paycheck for state and local taxes,check with your state. If you are a new employer, consult our state-by-state list ofpayroll information for employers.

Like federal taxes, state and local taxes go towardpublic services.

Garnishments

Wage garnishmentsare necessary if one of your employees has an unpaid debt. If you need to withhold garnishments from an employee’s paycheck, you will receive an order from a court or government agency with more information.

Voluntary payroll deductions

In addition to mandatory payroll deductions, you may need to withhold extra money. Voluntary payroll deductions require employee consent. To participate in different benefits, employees must opt in.

Health insurance premiums

Health insurance deductions will vary based on what you offer at your small business and the plan your employee chooses. Health insurance coverage includes doctor visits and prescriptions.

Retirement plans

If you offer a retirement plan, your employee can opt into having money withheld for a personal retirement fund. The money an employee contributes now will benefit them when they retire. There are many differentsmall business retirement optionslike an IRA (Individual Retirement Account) or a 401(k).

Life insurance premiums

An employee can choose to have deductions taken out of their paychecks to go toward a life insurance premium. In the event of your employee’s death, their life insurance provides their beneficiaries with payment.

Job-related expenses

If your small business charges employees job-related expenses such as union dues, uniforms, and meals, you will need to deduct them from your employee’s paycheck.

Do you need help with your payroll? Make it easy on yourself and try Patriot Software’sonline payrollsoftware. We offer free setup and support so you can run payroll hassle-free. And, Patriot’sFull Service Payrollwill deduct, file, and remit federal, state, and local taxes for you.

This article was updated from its original publish date of 04/23/2012.

This is not intended as legal advice; for more information, pleaseclick here.