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What are payroll deductions?

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Payroll deductions are wages withheld from an employee’s total earnings in order to pay taxes, garnishments, and benefits, such as Social Security.

How do payroll deductions work?

Employers use information from the W-4 to calculate employee deductions. Payroll departments can also receive court orders to withhold a certain amount of an employee’s wages for garnishments.

The payroll department typically uses a standard procedure for gathering payroll deduction information, accounting for employees in multiple geographic locations with different state and local tax rates. As a business grows, they may opt to use a payroll and payments platform.

What are common payroll deductions?

A few common payroll deductions include:

  • Federal income tax
  • State income tax
  • Social Security
  • Medicare tax
  • Insurance policies
  • Retirement

The money taken out of an employee’s paycheck falls into two categories: withholdings and deductions. Withholdings are required by federal and state governments, and deductions may be voluntary or court-ordered.

What are the mandatory payroll deductions?

Mandatory payroll deductions are federal income tax, state income tax, Social Security, and Medicaid. Some cities and counties also require other income taxes.

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