Employee Deductions
What Are Employee Deductions?
Employee deductions, or payroll deductions, refer to the portion of an employee's salary taken out of their paycheck for purposes such as taxes, garnishments, and benefits. There are both mandatory and voluntary deductions. Some are pre-tax (which lower taxable income) and some are after-tax.
Mandatory Employee Payroll Deductions
- Federal income tax (FIT)
- State and local income taxes
- Unemployment (where applicable—employers usually pay this)
- FICA, Social Security, and Medicare
Voluntary Employee Payroll Deductions
Voluntary employee payroll deductions are those which the employee has accepted in advance, usually during the open enrollment period. These are considered employee benefits, and usually include:
- Retirement or 401(k) contributions, which are pre- or post-tax depending on the type
- Employee health, vision, or dental insurance
- Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA), which have annual contribution limits
- Union dues
What Additional Deductions Can Be Made from an Employee’s Paycheck?
It’s not encouraged, but an employer can legally reduce an employee’s wages for certain reasons, as long as they provide written notice and the pay is still at least minimum wage. However, this usually applies to nonexempt employees, with very few exceptions (such as significant safety violations).