Can My Employer Take Money Out of My Check?

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Your employer can take money out of your paycheck if it is legally required or if you consented to the deduction. These deductions are called statutory and voluntary deductions, respectively. Specifically, statutory deductions are those federal or state law requires, and voluntary deductions are those the employer offers and you accept.

  1. Types

    • Statutory deductions include federal and state payroll taxes, such as federal income tax, Medicare tax, Social Security tax, and state, city and local income taxes. Your employer has to withhold these from your paycheck because the respective law requires it. Statutory deductions also include court-ordered wage garnishments, child support withholding orders and wage garnishments/levies issued by a federal or state institution, such as the IRS or the state taxation agency. Voluntary deductions depend on the employer, but generally include medical, dental and retirement benefits; flexible spending accounts; parking fees; charitable contributions; and union dues.

    Tax Calculations

    • The employer uses your W-4 form and IRS Circular E to figure federal income tax withholding. Specifically, it obtains your filing status and allowances from your W-4 and uses the Circular E's federal withholding tax tables that correspond with your withholding conditions to figure the withholding amount. State, city and local income tax withholding policies vary. Most states charge a state income tax, but most city and local governments do not require city and local income tax withholding. The employer applies the state revenue/taxation agency's guidelines when withholding state income tax. It calculates Social Security tax at 6.2 percent of gross income, up to the annual wage limit of $106,800; and Medicare tax at 1.45 percent of all gross income.

    Garnishment

    • Title III of the Consumer Credit Protection Act says an employer cannot withhold more than 25 percent of your disposable wages in a single pay period for a wage garnishment. This applies to ordinary wage garnishments, such as those a creditor initiates. The employer uses IRS Publication 1494 to determine the amount of pay exempt from an IRS wage levy. It withholds up to 50 to 60 percent of disposable income for child support or alimony, and an additional 5 percent for support payment over 12 weeks late.

    Pretax and After-tax

    • A pretax voluntary deduction is one that meets IRS Section 125 requirements. These deductions lower taxable income because they are deducted before taxes are withheld from wages. Examples of pretax deductions include traditional 401(k) plans; pretax health plans; and flexible spending accounts, such as child care expense. Deductions that do not qualify as pretax are deducted on an after-tax basis. The employer makes the deduction after withholding payroll taxes.

    Considerations

    • The state may have regulations concerning lawful and unlawful deductions. Consequently, employers should examine their state law carefully to ensure compliance. California law, for example, deems deductions for gratuities, photographs, bond, uniforms, business expenses and medical or physical examinations as unlawful.

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