Payroll Deductions

In my previous post of What we need to know about taxes? I went over different types of taxes and one of the important ones is income tax. When employers issue payroll checks to employees, there are both required deductions and voluntary deductions that are withheld from the paycheck.

There are different categories of payroll deductions withholdings. Among all withholdings, tax withholdings take a major portion of payroll deductions. There are tax withholdings for federal income tax, state income tax, Social Security and Medicare taxes. And the withholding rate varies by taxable income, household status, and other status. The current social security tax withholding rate is 6.2% for employer and 6.2% for employee, for a total of 12.4%. The current rate for Medicare tax withholding rate is 1.45% for employer and 1.45% for the employee, with a total of 2.9%. (source https://www.irs.gov/taxtopics/tc751),

There are also other deductions that are withheld from payroll, including employee portion of benefits premiums for medical insurance, dental insurance, vision, or other elective insurance plans. Employee Retirement savings plan contribution is also a payroll deduction, as well as other optional deductions, for example, 529 education savings account deductions, FSA Flexible Spending account deductions. The majority US employers issue payrolls biweekly, meaning there are total 26 paychecks. Some employers make payment monthly, for 12 total paychecks every year.

Reading and understanding payroll deductions are important for wage earners to understand their take home net salary payment, and also the deducted benefit savings they have been accumulating from each pay checks. Understanding payrolls also is beneficial to build a successful personal financial plan in the long run.