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Payroll deductions are amounts taken from paychecks, including mandatory deductions like taxes and voluntary deductions like contributions to retirement or health insurance. The types of deductions vary by country and employer. In the US, standard deductions include federal and state taxes and FICA payments, while other countries may have national health insurance deductions. Some deductions are mandatory, while others are voluntary and can provide future benefits. Employees should be able to see detailed lists of deductions on their paystubs.
A payroll deduction is an amount taken from each paycheck, like taxes, that reduces an employee’s gross pay or total pay. Most paystubs list payroll deductions. Certain deductions are standard or required, and these will vary depending on the country or state of employment and/or residence. Even more variable are voluntary deductions, which can include things like contributions to 401ks or health insurance. The types of voluntary deductions tend to depend on the employee benefits or programs offered by an employer.
There is more than one standard payroll deduction in the United States. Employers eliminate federal income taxes, state taxes, and Federal Insurance Contributions Act (FICA) or social security payments. In some states, employers must also deduct city, county or local taxes and payments for state unemployment and disability insurance. The amounts of each payroll deduction are generally based on the amount of money you earn and may also be influenced by the number of exemptions you claim on your W-4 form.
In other countries, taxes and possibly payments to things like national health insurance make up the majority of standard or required payroll deductions. Some countries allow many full-time workers to register as self-employed or without a contract. In this case, they are paid a little more, but they must meet their tax obligations at the end of the year. Independent contractors in the United States also do not have any type of payroll deduction, but must arrange to pay all required taxes at the end of each tax year.
Sometimes a payroll deduction is mandatory, but it only applies to the individual or workers at a specific company or union membership. Some mandatory contributions may include paying parking fees, especially at universities. Another common pay deduction is when the court forces a person to withdraw the pay to cover things like child support or to pay back taxes. People who belong to unions can expect union dues to be deducted from their pay.
A voluntary payroll deduction is often taken to help employees participate in programs that may provide them with some benefit. Common deductions include payments to health insurance, payments to carry life insurance, contributions to 401ks and/or health savings accounts, and payments to disability plans. Some of these deductions will directly benefit employees at a future date. Making payments to retirement savings accounts or depositing money into health savings or flexible spending accounts means the employee can access that money. Although the payment is deducted, it is not gone, but simply designated.
In total, the number of payroll deductions reduces gross pay, possibly significantly, and employees should be able to see detailed lists of what is removed from pay. Many voluntary contributions are the same with every paycheck. Other deductions depend on the pay amount and may vary if pay check amounts differ each pay day.
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