Payroll deductions are any payments an employer withholds from employees’ paychecks. These deductions are the difference between gross pay and net pay — an employee’s take-home pay is what is left after deductions have been withheld. There are both voluntary and mandatory payroll deductions. Understanding the difference is especially important for small business owners who may not have large teams dedicated to payroll issues.
Mandatory deductions include:
- Federal income tax
- Federal Insurance Contributions Act (FICA) taxes (sometimes thought of as Social Security and Medicare taxes, as they help fund those programs)
- State and local taxes
- Wage garnishments
- State disability and unemployment insurance, if required by your state
Some common voluntary payroll deductions include:
- Health insurance premiums
- Life insurance premiums
- Retirement savings or contributions to a retirement plan such as a Roth IRA
- Union dues
- Charitable donations
- Health savings accounts and other health benefits programs
Ascentis’ powerful payroll software can help you manage all your payroll deduction needs.