Payroll Deduction Law

The law regulates that employees should have statutory payroll deductions. To comply with this law, employers are mandated to deduct involuntary deductions such as taxes from each employee's paycheck. Failure to adhere to these laws results in penalties from the federal and local government.

FICA Taxes

The Federal Insurance Contributions Act (FICA) mandates that payroll taxes, such as Social Security and Medicare, must be withheld from employees' checks each pay date. Typically, FICA taxes are collected at 7.65 percent of the employees' gross earnings (the amount before taxes are deducted). Specifically, the employee contributes 6.2 percent toward Social Security and 1.45 percent toward Medicare. If the employer neglects to pay the employees' withheld taxes, he or she is liable for the total tax amount due and subsequent penalties and interests.

State/Local Taxes

Some state laws mandate that employees must pay state income tax. It is the state's decision whether they want to impose state income tax or not. For states that charge income tax, the amount due varies from state to state and is also dependent on the employee's filing status and dependent amount. States such as Alaska, South Dakota and Florida do not charge income tax. Some states also charge different types of local taxes, such as city, county and/or school district taxes.

Federal Taxes

All employees are required to pay federal taxes based on the Internal Revenue Service's withholding tax tables. The amount is determined by the employee's filing status and his or her allowances amount; federal taxes are deducted from the employees' gross pay.

Court-Ordered Deductions

Court-ordered deductions typically manifest as child support, wage garnishments, alimony, tax levies and federal student loans. When these orders are delivered to the employer, he or she must comply with them or be in violation of the law and subjected to subsequent fines. The deduction amounts depend on the type of deduction; usually, the document will state how much the employer should deduct (for example, 15 percent of the employee's gross pay per pay period). The employer cannot stop these deductions unless authorized by the courts.

Voluntary Deductions

With the employee's consent, the employer can withhold voluntary deductions from the employee's paycheck. Generally, these deductions are health insurance (medical, dental and vision), 401k plans, stock purchase plans, life insurance premiums, union dues and any other expenses relating to the job. The employee does not have to participate in these plans and can usually terminate them if he or she is longer interested in keeping them.

Wage Overpayment

If the employer overpays the employee in error during a specific pay period, and if the employee is earning minimum wage, the employer cannot receive the overpayment by performing a routine payroll deduction. The employer can, however, obtain a garnishment order to payroll deduct the overpayment, or he or she can deduct the overpayment when the employee is earning more than minimum wage.

References

• Pacific Employers: Basic Reminders on Payroll Deductions