What Are Payroll Deductions From Your Paycheck?
Gain clarity on your paycheck by understanding the deductions that bridge the gap between your gross earnings and final take-home pay.
Payroll deductions are amounts of money taken from an employee’s total earnings, also known as gross pay. These deductions cover taxes and benefits, resulting in the final take-home amount, or net pay. Understanding these subtractions helps in managing personal finances, as they determine the cash an employee receives.
These deductions fall into distinct categories. Some are required by law to fund government programs. Others are elective, allowing employees to pay for benefits and save for the future. The combination of these deductions creates the difference between the salary an employee earns and the amount they deposit.
Mandatory Payroll Deductions
Certain deductions are required by federal, state, and local laws. Employers must withhold these amounts and remit them to government agencies. These non-negotiable deductions form a significant part of an individual’s tax obligations.
Federal income tax is a mandatory deduction that funds U.S. government operations like defense and infrastructure. The amount withheld is calculated based on an employee’s earnings and the information on their Form W-4. This form accounts for filing status, dependents, and additional income or deductions to tailor withholding to an employee’s expected tax liability.
Many states and some local municipalities also levy their own income taxes, withheld similarly to federal taxes. The rules and rates for these taxes vary by location. For those in states with an income tax, it is another required deduction.
Another set of mandatory deductions falls under the Federal Insurance Contributions Act (FICA), composed of Social Security and Medicare taxes. The Social Security tax is 6.2% for employees and funds retirement, disability, and survivor benefits. This tax applies up to an annual wage base limit of $176,100 for 2025, after which it is no longer withheld for the year.
The Medicare tax funds hospital insurance for individuals over 65 and certain younger people with disabilities. This tax is levied at 1.45% for employees on all earnings, with no wage base limit. High-income earners may be subject to an Additional Medicare Tax of 0.9% once their wages exceed $200,000 in a calendar year.
Employers may be required to process wage garnishments, which are court-ordered deductions to pay off a debt like child support or unpaid taxes. The Consumer Credit Protection Act limits how much can be garnished. For ordinary debts, the limit is the lesser of 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage. For child support, up to 50-60% can be garnished.
Voluntary Payroll Deductions
Employees can also choose to have amounts deducted for benefits and savings plans offered by their employer. These voluntary deductions allow employees to pay for services and invest for the future using pre-tax or post-tax dollars. The availability of these deductions depends on the employer’s benefits package.
A common voluntary deduction is for health insurance premiums for medical, dental, and vision plans. Paying for these premiums on a pre-tax basis reduces an employee’s total taxable income while securing health coverage.
Retirement plan contributions are another voluntary deduction. Employers may offer plans like a 401(k) or 403(b), where employees contribute a portion of their salary. For 2025, the employee contribution limit is $23,500, and contributions are typically made pre-tax.
Employees may also elect to pay premiums for group life insurance, short-term disability (STD), or long-term disability (LTD) coverage. These policies provide financial protection in the event of death or an inability to work. The cost of these employer-sponsored plans is often lower than individual plans.
Other deductions include contributions to healthcare savings accounts. A Health Savings Account (HSA) is for employees in a high-deductible health plan, with 2025 limits of $4,300 for an individual and $8,550 for a family. A Flexible Spending Account (FSA) is another option with a 2025 limit of $3,300. Other deductions can include union dues or charitable contributions.
How to Read Deductions on Your Pay Stub
Your pay stub is the official record of your earnings and deductions for a pay period. While the layout can vary, most pay stubs follow a similar structure, breaking down your pay from the total amount earned to the final amount received.
The starting point on any pay stub is your gross pay. This is your total earnings before any deductions are subtracted. It includes regular salary or wages, plus any overtime, bonuses, or commissions.
Following gross pay is an itemized list of all deductions. This section details each amount withheld, often using abbreviations like “Fed Tax” or “401k.” Each line shows the deduction for the current pay period and a year-to-date (YTD) total.
After the itemized list is a figure for total deductions. Subtracting this total from your gross pay yields your net pay. This is the final “take-home” amount deposited into your bank account.
Adjusting Your Payroll Withholdings
Employees have control over certain withholdings and can make adjustments based on their financial situation. This can help manage take-home pay and meet tax obligations correctly. The process differs for adjusting tax withholdings versus voluntary contributions.
Federal and state income tax withholding can be modified by submitting a new Form W-4 to your employer. This form can be updated when your financial situation changes, such as getting married, having a child, or taking on a second job. Changing your filing status or dependent information alters the tax withheld.
Changes to voluntary deductions like health insurance or 401(k) contributions are more restricted. Employers have an annual open enrollment period to make changes for the upcoming year. Outside this window, you can only alter these deductions if you experience a qualifying life event (QLE).
A QLE is a change in your personal life that impacts benefit needs, such as marriage, birth of a child, divorce, or loss of other health coverage. Following a QLE, you are given a special enrollment period, often 30 to 60 days, to update your benefit choices.