Types

• Legal deductions include federal payroll taxes, such as federal income tax; Medicare tax and Social Security tax. Additionally, most states require state income tax deductions. Statutory deductions also include child support orders, court-ordered wage garnishments and those issued by a statutory institution, such as the Internal Revenue Service.
  
  

Significance

• Federal payroll taxes are used to fund federal programs, such as medical and retirement benefits, law enforcement, defense and foreign affairs. State income tax is used to fund state services, such as health and education. Wage garnishments and child support orders are tactics the courts or issuing institution uses to get debtors and parents to fulfill debt and parental obligations, respectively.
  
  

Deduction Method

• The employer deducts Social Security tax at 6.2 percent of gross income and Medicare tax at 1.45 percent. It uses IRS Circular E to figure federal income tax and the state withholding tax tables to determine state income tax. The employer deducts wage garnishments according to the notice's instructions. Notably, he cannot garnish more than 25 percent of the employee's disposable pay.