Explanation of Paycheck Deduction

The total amount of your salary or wages is not the same as the amount you receive in your paycheck. Your employer takes out a certain number of deductions, reducing your net pay. In some cases, the deductions benefit you and your future and are voluntary. You do not have a say regarding certain other deductions.


Your employer deducts federal income tax from your check as well as Social Security and Medicare taxes. The amount of federal tax deducted depends on the information you supplied in your W-4 form when you were hired. You can adjust the W-4 if you ended up owing taxes to the IRS when you filed your return or if you paid too much. The amount taken for Social Security and Medicare is a fixed percentage, 4.2 percent for Social Security and 1.45 percent for Medicare, at time of publication. Depending on your city and state, you might also have state and local taxes taken out of your check.

Retirement Plans

If you have a retirement plan through your employer, you most likely have the option of having a set amount automatically taken out of your paycheck. A retirement plan deduction is usually voluntary, so you can terminate it at any time. If you work for a state government or other program with a pension, your retirement deduction might be mandatory. Typically, the amount deducted for your 401(k) or other employer-sponsored plan is deducted from your gross pay, before taxes are taken out.

Healthcare Costs

Healthcare can be pricey, but it can also be tax-free. Depending on your employer, you might have several payroll deduction options when it comes to healthcare. If your health insurance is through your employer, your portion of the premium amount is deducted from your check, before taxes. You might also have a health savings account, which is a bank account that you use to save money to pay for medical expenses. The money you save in an HSA is tax-deductible, and you can choose to have a certain amount taken out of each check and deposited directly into the account, if your employer offers one.

After-Tax Deductions

Not all deductions on a paycheck are taken out before taxes. You need to pay income tax on certain deductions, such as the cost of any union dues or life insurance. If your employer allows you to deduct costs for certain services, such as parking or the cost of your uniform, from your check, the deduction is taken after taxes.

the nest