Tax Withholdings

• Employers deduct taxes from each employee's paycheck. Employers withhold federal income tax based on your selections on form W-4. The W-4 establishes your tax withholding status and is completed upon hiring, although you can adjust your allowances at anytime. Depending on where you live, you may also have pay deductions for state, county or other local municipal taxes. Not all states require state income tax; therefore, employees residing in those states will not see state taxes withheld. Additionally, wage earners also see deductions, based on gross pay, for federal programs, including Social Security, Medicare and Old-Age, Survivors, and Disability Insurance. Per the Federal Insurance Contributions Act, referred to as FICA, wage earners are required to contribute, via payroll tax deductions, to these programs.
  
  

Medical and Dental Insurance

• Employees who choose to participate in an employer-sponsored group health insurance plan may see paycheck deductions. If payment of the premium is shared between the employer and employee, this is reflected in the payroll deduction. The employer pays the premium and then deducts the appropriate amount from the employee's check, based on plan and tier of coverage selected. Employees who select a richer plan option for his entire family will have a higher deduction than the employee who selects a basic plan covering only the employee.
  
  

Retirement Plans

• A common payroll deduction is retirement savings plan contributions. Many employers offer participation in 401(k) or 403(b) retirement plans for employees. Employees can elect to contribute a percentage of her gross income into a tax-deferred retirement account. For employees, this is a favorable arrangement as it reduces the taxable amount of their paychecks in addition to contributing to future savings. Federal laws govern the maximum contribution amount allowed, allowing a higher dollar amount for employees older than 50.
  
  

Other Group Insurance

• Your employer may contract with other insurance companies, in addition to medical and dental providers, to offer discounted group rates on various voluntary plans. For instance, an automobile or life insurer may offer a group rate to an employer and their employees. These benefits, if selected by the employee, often become additional payroll deductions. This provides a convenience to the employee, who may receive a premium discount through a group plan and does not have to make payments to the insurer if deducted through her paycheck.