Saturday, December 21, 2019
Everything You Need to Know About Payroll Deductions
Everything You Need to Know About Payroll DeductionsEverything You Need to Know About Payroll DeductionsNeed information about the payroll deductions you see on every paycheck? Knowing what they are and why they exist is important for your understanding of your compensation. Payroll deductions are either mandatory or voluntary. Knowing the difference and why these deductions exist will explain why your salary is not the saatkorn as what you are paid. If you have additional questions after reading through this information, your Human Resources department is your best resource. They can answer your questions about your compensation, paycheck, and payroll deductions. Mandatory Payroll Deductions The employer is required by law to withhold payroll taxes from an employees gross pay prior to issuing a paycheck to comply with government regulations. Employers who fail to follow the law on mandatory deductions are open to lawsuits, fines, and even, going out of business. As an employee, you just need to understand whats going on. These are the mandatory payroll deductions for taxes Federal income taxState taxesLocal (city, county) income tax withholding in some areas. (Other local taxes can include school district taxes, community college taxes, state disability or unemployment insurance, for example.) The second set of mandatory payroll deductions are for FICA (Federal Insurance Contributions Act) taxes that include Social security taxes andMedicare tax withholding. Depending on your state and locality, you may have very different tax rates. Federal tax rates are the same across states for all taxpayers. Voluntary Payroll Deductions While the law does not require an employer to take voluntary deductions from payroll, most employers do. In some cases, voluntary payroll deductions are convenient for the employer. In others, voluntary payroll deductions are convenient for the employee. Voluntary deductions from gross pay include items such as charitable contribut ions (for example, United Way) and the employees required contribution to the employer-provided healthcare, dental, or vision insurance coverage. They also include Certain retirement voluntary deductions can also be paid through the employee paycheck. These include several common employer-sponsored 401(k) plans, with or without an employer match, which are paid pre-tax and a Roth 401(k) that is paid after tax. Another common voluntary payroll deduction is for additional employer-sponsored life insurance. Many employers pay for a basic life insurance policy for employees. But, employees can elect more coverage for themselves, their spouse, and family if they choose. To take mandatory and voluntary payroll deductions, the employer must first determine the employees salary, called gross pay, that was earned during the time period. The employer then subtracts the mandatory and voluntary deductions from this total pay to arrive at the employees net pay. Because the US tax laws are confus ing and penalties are avoidable, employers will want to talk with their state Department of Labor and their employment law attorney when they begin hiring employees. It pays to know what is legally required. Your business accounting firm is also another expert in matters relating to payroll taxes and deductions. As an individual, hopefully, you have a better understanding about why your net pay can be so much lower than the wages that your employer is actually paying you (gross pay) - and where that money goes.
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