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Employee payroll deductions are funds withheld from a paycheck by an employer, including voluntary deductions for health insurance and retirement contributions, and mandatory deductions for taxes and social programs. Voluntary deductions offer tax benefits and can be adjusted by the employee, while mandatory deductions are required by law. Pay stubs show the amounts deducted, and changes can be made during open enrollment or major life changes.
Employee payroll deductions refer to funds withheld from an employee’s paycheck by their employer. Some of these are voluntary deductions, such as funds withheld to pay for health insurance or retirement fund contributions. Other payroll deductions may be required by law for employees, depending on the country in which a person lives. Deductions to pay government taxes or to contribute to certain programs, for example, can be automatically taken out of your paycheck. The amount of these deductions can be adjusted in some cases by the employee; For example, a single person may choose to have less withholding than a married person.
Voluntary employee payroll deductions are largely designed to make it easier for employees to pay certain expenses, or save for retirement, and often offer tax benefits as well. This occurs when payroll deductions are taken on a pre-tax basis, as this prevents the person from having to pay income tax on this money. The most common employee volunteer payroll deductions are for group health insurance, as well as life insurance if offered by the company. Contributions to retirement accounts, health savings accounts, or investment plans, such as purchasing company stock, are also common.
An employee’s pay stub will show the amount of these voluntary payroll deductions that have been taken, to allow you to verify that the amounts are correct. Generally, an employee can make changes to these deductions if she wishes, although some companies will only allow insurance changes once a year, during a period known as open enrollment. The only exceptions to this open enrollment period are when a major life change occurs, such as a marriage, divorce, or the birth of a baby, for example.
Mandatory employee payroll deductions are often included in paychecks as well, as the employer withholds certain taxes or fees and then pays them to the government on the employee’s behalf. This may include a portion of income tax, as well as state taxes where applicable, as well as contributions to certain social programs, such as government-sponsored health insurance or retirement plans. The amount of tax withheld may be adjusted based on a person’s filing status in some cases. Other required mandatory payroll deductions may be company specific; For example, if a company’s employees participate in a union or are required to pay fees for certain benefits, such as uniforms, these funds can be automatically withdrawn from a paycheck.
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