Understand Your Pay Deductions: What To Look For

Lots of money gets taken out of your paycheck to pay for taxes, government programs, and benefits. You should understand what you pay in deductions and keep track of where the money is going. You can also increase or decrease voluntary deductions to access more money or get tax savings. If there are problems with your payroll deductions, talk to your HR representative to clear up any issues.

Tax deductions can depend on your job, state laws, and your individual situation. For legal advice about your paycheck deductions, talk to a local wage and hour lawyer.

Types of Payroll Deductions

Whether you work hourly or for a salary, your employer gives you a paycheck for each pay period. Many workers get their paychecks through direct deposit. After each payment, they get a pay stub showing their total gross earnings and deductions. A payroll deduction is some amount of money withheld from your paycheck to pay taxes, insurance premiums, and other uses.

After the deductions come out of your paycheck, you are left with your take-home pay. The difference between your total earnings and take-home pay can be significant.

Some payroll deductions are voluntary, while others are required by state and federal wage and hour laws. It is important to understand the types of payroll deductions, what they pay for, and when you can change deduction amounts.

Generally, payroll deductions are either pre-tax or post-tax. Some deductions get tax-preferred treatment by the Internal Revenue Service (IRS) and state tax agencies. Pre-tax deductions reduce your tax liability, so you pay less in taxes. After-tax deductions come out after the IRS includes that money in taxable income.

Pre-Tax Deductions

Most workers have deductions for federal, state, and local taxes and payroll deductions. Other pre-tax deductions depend on your employer and individual situation.

Pre-tax deductions include the following categories:

Income Tax Deductions

Taxable income includes any earned income from salaries, wages, tips, bonuses, and commissions. Your employer reports your income to federal and state income tax agencies and withholds money from your paycheck to pay directly to the IRS and local tax agencies.

When you fill out your employer’s Form W-4, you indicate your allowances. This lets your employer know how much to withhold from your paycheck for income tax withholdings. If you owe more at the end of the tax year, you make a payment. If you paid more in taxes than you owe, you get a refund when you file your tax return. Your withholding can depend on your gross income, tax rate, dependents, and filing status.

FICA Deductions

The Federal Insurance Contributions Act (FICA) is a payroll tax that goes towards Medicare and Social Security. As of July 1, 2025, the Social Security tax is 6.2 percent and the Medicare tax is 1.45 percent, for a total of 7.65 percent. Your employer matches your contribution of 7.65 percent for a total contribution of 15.3 percent.

Healthcare Premiums

Most employers offering health insurance split the cost of coverage between the employer and the employee. The amount of your health insurance deductions can vary by your employer, type of insurance, and beneficiaries.

Health insurance deductions go towards your insurance company premiums. Employees may choose their own insurance plans. However, most workers have to wait until their Open Enrollment Period or if they have a qualifying life change.

Retirement Plans

Retirement plan deductions go towards worker’s retirement plans, which include pensions, 401(k)s, IRAs, SEPs, or 403(b)s.

Some employers contribute towards retirement plans with a match. These types of pre-tax retirement plans have tax-preferred status to encourage people to save towards their retirement. The money you contribute is generally restricted until you reach the qualifying age. For most voluntary retirement plans, you can change your contribution deduction at any time.

FSA and HSA Accounts

Flexible spending accounts (FSA) and health savings accounts (HSA) set aside pre-tax income to pay for qualifying healthcare and medical expenses.

Workers can only pay for certain qualifying expenses and dependent care with FSA and HSA contributions. Like health insurance, you generally need to wait until a qualifying life event or the end of the plan year to change your contributions.

Unemployment Insurance

Unemployment insurance (UI) deductions go towards state and federal unemployment programs. Your UI tax rate depends on state law. When qualifying workers lose their jobs, they can get unemployment benefits until they return to the workforce or their benefits run out.

After-Tax Deductions

Some post-tax deductions are voluntary while others may be mandatory under a court order or union agreement. Many employees have no post-tax deductions.

After-tax deductions include:

• Union dues
• Life insurance
• Disability insurance
• 529 college savings plans
• Child support

Wage garnishment is another kind of post-tax deduction that involves a court order requiring employers to deduct a certain amount of money from the employee’s pay. Garnished wages go to obligations such as child support, spousal support, creditor judgments, or tax debts. Wage garnishment can have a regular set amount or a maximum percentage of the worker’s net pay.

Limits on Paycheck Deductions

There are limits to how much employers can take out of your paycheck under state and federal law. Some deductions are limited if they reduce the worker’s income below the minimum wage rate. For example, deductions for cash shortages, uniform costs, and merchandise damage are not allowed if the worker’s wage rate after deductions falls below the minimum wage.

There are maximum wage garnishment limits under state and federal law. Mandatory deductions are generally limited by the worker’s disposable earnings. Disposable earnings refer to the amount of pay you have after mandatory deductions (including income tax and FICA tax). Disposable income does not subtract voluntary deductions, like retirement contributions.

How To Spot Unlawful Deductions

Most employees assume their payroll deductions are lawful. But that’s not always the case. Review your paycheck, identify each deduction, and find out what it goes towards.

If you see deductions you do not understand on your pay stub, ask your supervisor or human resources representative. Make sure you understand each deduction, what it is for, and that it is valid under state and federal law.

Addressing Paycheck Discrepancies

Keep pay stubs for an accurate record of your earnings, deductions, and income tax payments. This information is helpful to address any differences between your earnings and how much gets deposited into your bank account.

To address paycheck issues, start with your payroll or human resources department. They can help identify any problems and clear up any errors or mistakes.

Your employer should also inform you of how and when you can make changes to your voluntary deductions or changes during open enrollment. You can still make health insurance changes even if it is not during the open enrollment period or if you experience a major life event, like getting married or having a child.

Find a Wage and Hour Lawyer

If you cannot take care of paycheck issues with your employer, an employment lawyer can offer legal advice. An attorney can review your paycheck issues and explain your legal options. In some cases, your attorney can negotiate with your employer or file a lawsuit to help you recover unpaid wages. Contact a local wage and hour lawyer for help with your paycheck questions.