What Are the Most Common Payroll Deductions?
Understand what makes up your net pay. Explore the essential and elective subtractions from your gross earnings for financial clarity.
Payroll deductions are amounts subtracted from an employee’s gross pay, which is the total earnings before any reductions. These subtractions result in the net pay, the actual amount an employee receives. Deductions serve various purposes, from funding government programs to contributing to employee benefits, and are a standard part of employment.
Required Deductions
Legally mandated payroll deductions are non-negotiable and are remitted to government entities to fund public services and social programs.
Federal income tax withholding is a primary required deduction. This amount is calculated based on information provided by the employee on Form W-4. The United States employs a progressive income tax system, meaning higher income levels are subject to higher tax rates.
Many states also impose their own income taxes. The structure of state income tax varies considerably, with some states not levying an income tax at all, such as Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Other states may have a flat tax rate, where a single percentage applies to all taxable income, while the majority of states utilize a progressive tax system with multiple tax brackets. In certain localities, cities or counties may further impose their own income taxes.
Contributions under the Federal Insurance Contributions Act (FICA) fund Social Security and Medicare. These federal programs provide retirement, disability, and healthcare benefits. For 2025, the Social Security tax rate is 6.2% for employees, applied to earnings up to a wage base limit of $176,100. The Medicare tax rate is 1.45% of all wages, with no wage base limit.
Employers contribute a matching 6.2% for Social Security and 1.45% for Medicare. An additional Medicare tax of 0.9% applies to employee wages exceeding $200,000 in a calendar year. This threshold can vary based on tax filing status.
Some states also require employee contributions for specific state-level programs, such as State Disability Insurance (SDI) or State Unemployment Insurance (SUI). For instance, California, Hawaii, New Jersey, New York, and Rhode Island mandate employee contributions for State Disability Insurance programs, which provide partial wage replacement for non-work-related illnesses or injuries. A few states, including Alaska, New Jersey, and Pennsylvania, require employee contributions to State Unemployment Insurance funds. These state-specific deductions support local safety nets and vary significantly by jurisdiction.
Optional Deductions
Beyond legally mandated withholdings, employees can choose to participate in employer-sponsored programs that result in additional payroll deductions. These optional deductions are based on an employee’s enrollment in benefit plans or other voluntary arrangements.
Health insurance premiums are a common optional deduction for health, dental, and vision coverage. These premiums are frequently deducted on a pre-tax basis, meaning the amount is subtracted from gross pay before income taxes are calculated, reducing taxable income. This pre-tax treatment also applies to amounts contributed to Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs).
Retirement plan contributions are another significant optional deduction. Common plans include 401(k)s and 403(b)s, where employees contribute a percentage or fixed amount of pay. These contributions are typically made on a pre-tax basis, reducing current taxable income and allowing earnings to grow tax-deferred. Some employers also offer the option to contribute to Roth 401(k)s, where contributions are made with after-tax dollars, but qualified distributions are tax-free.
Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) offer tax-advantaged ways to pay for healthcare or dependent care expenses. Both are funded through pre-tax payroll deductions. While HSAs are available only to individuals with high-deductible health plans and offer portability and investment opportunities, FSAs are subject to a “use it or lose it” rule, requiring funds to be spent within the plan year.
Employees may also opt for supplemental insurance coverages, such as additional life insurance or long-term disability insurance. These policies provide financial protection beyond any basic coverage an employer might offer. Other voluntary deductions can include contributions to charitable organizations through workplace giving campaigns, union dues, or contributions to employee stock purchase plans.
Additional Deductions and Pay Stub Review
Other situations can lead to amounts being withheld from an employee’s pay. These deductions are specific to individual circumstances rather than universal.
Wage garnishments are court-ordered deductions from an employee’s earnings to satisfy a debt. Common reasons include unpaid child support, outstanding student loans, or delinquent tax obligations. These are mandatory once the employer receives an official order and apply to those with specific financial liabilities. Federal law places limits on how much can be garnished, capping it at 25% of disposable earnings for most consumer debts, though higher percentages can apply for child support or alimony.
Deductions for loan repayments can also appear on a pay stub. This includes repayments for 401(k) retirement plan loans or other employer-provided loans. These are set up as a convenient way for employees to repay borrowed funds. In certain industries, deductions for company-provided uniforms or equipment might occur if these items are initially paid for by the employer and then reimbursed by the employee.
Understanding a pay stub is important to verify the accuracy of earnings and deductions. A pay stub lists the gross pay for the pay period. Each deduction is itemized separately, showing the amount withheld for federal income tax, state income tax, FICA taxes, health insurance premiums, retirement contributions, and any other applicable deductions. The final figure, after all deductions are subtracted from gross pay, is the net pay. Employees should regularly review their pay stubs to ensure all deductions are correct and to promptly contact their human resources or payroll department with any questions or discrepancies.