An Employer's Guide to Payroll Deductions
Payroll deductions take the form of statutory or voluntary. Statutory means that a federal or state law requires the deduction; voluntary means the employee agrees to the deduction. Each deduction has its own calculation formula. The employer should understand how deductions work to ensure proper withholding from employees' paychecks.
Other People Are Reading
-
Payroll Taxes
-
Payroll taxes are required by federal, and in most cases, state law, and are therefore statutory. The Internal Revenue Service (IRS) enforces federal payroll tax withholding laws. Employers are required to withhold Medicare tax, Social Security tax and federal income tax from employees' wages. The state revenue agency enforces state payroll tax withholding laws. States such as Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington and Wyoming do not charge state income tax. In some instances, city and local income tax applies.
The employer uses IRS Circular E, Employer's Tax Guide, to determine compliance procedures for federal tax withholding. He complies with the state revenue agency's guidelines for state income tax, city income tax and local income tax withholding.
Wage Garnishments
-
A wage garnishment is a statutory deduction. It can be court ordered or ordered by a legal institution, such as the state taxation agency, the U.S. Department of Education or the IRS. Title III of the Consumer Credit Protection Act restricts the amount an employer can garnish for ordinary wage garnishments to 25 percent of disposable income within a single pay period. The IRS has its own publication (Pub. 1494), which instructs employers on the amount of pay that is exempt from the garnishment. For alimony and child support, the employer can garnish up to 50 or 60 percent, plus an additional five percent for support payments exceeding 12 weeks late.
-
Voluntary Deductions
-
Voluntary deductions include those the employer offers as a company benefit and those it offers as a convenience to the employee. Deductions vary by employer but commonly include medical, dental, life and disability insurance, paycheck advance, union dues, donations, parking fees, and flexible spending accounts. Voluntary deductions that meet the requirements of IRS Section 125 code---also called cafeteria plans---are deducted on a pretax basis, which means that the deduction is done before withholding taxes. Deductions that are not pretax are post-tax and are withheld from the total amount payable after withholding taxes.
Salary Deductions
-
A salaried employee generally receives his full pay, even if he takes partial days off. Provided he is ready, willing and capable of working, he is entitled to his full salary, even if no work is available. But in certain cases, the employer can deduct salary. The employer does not have to pay him for weeks in which he does no work. It can also deduct for overuse of benefit days, such as vacation and personal days; unpaid suspension; in new hire or termination situations; and for unpaid leave taken under the Family Medical Leave Act.
-
References
Resources
- Photo Credit check in macro image by Alexey Klementiev from Fotolia.com
