Types of Payroll Deductions
Understanding the types of payroll deductions is crucial for any business that withholds taxes, garnishments, benefits, and other withholdings from employee paychecks.
Any business that hires employees must register to pay payroll taxes in the state(s) where it has employees. The requirements and processes are essentially the same regardless of a business’s legal structure.
However, payroll tax rules vary from state to state, which can become confusing (especially for employers with remote employees in states other than where their company is located). Business owners need to educate themselves, ideally enlisting the help of a payroll specialist or accountant, to gain an understanding of the payroll taxes and other withholdings they will be responsible for.
The following payroll taxes and withholdings may apply to LLCs and Corporations depending on the business location, where employees are based, and other factors:
- Federal income tax – Withheld from employees’ paychecks.
- State income tax – Withheld from employees’ paychecks.
- Local income tax – Withheld from employees’ paychecks.
- FICA – Social Security and Medicare Taxes. (Half is withheld from employees’ paychecks and the employer pays the other half.)
- State and local payroll taxes – Some might be withheld from employees’ pay while others might be paid by employer.
- Unemployment taxes – FUTA (Federal unemployment tax is paid by employer and not withheld from employee paychecks.); SUTA (State unemployment tax is typically paid by employers and not withheld from employee paychecks. Also known as “SUI,” state unemployment insurance.)
- Workers’ compensation insurance – Paid by employer, not deducted from employee paychecks.
- Employee wage garnishments – Withheld from employees’ paychecks.
- Benefits and other voluntary deductions from employee pay.
Excerpt by Nellie Akalp
Schedule a 15‑minute consultation and experience what a guaranteed 24‑hour response system feels like.
Sincerely,
Maya Weinreb | Founder & CEO
813-336-1574
Frequently Asked Questions
What are the most common types of payroll deductions?
Common payroll deductions include federal income tax, state and local taxes, Social Security and Medicare (FICA), wage garnishments, employee benefits, and other voluntary withholdings.
Which payroll taxes are paid by employees and which are paid by employers?
Employees typically have federal, state, and local income taxes withheld from their paychecks, while employers are responsible for taxes such as FUTA, state unemployment taxes, and workers’ compensation insurance.
What is FICA payroll tax?
FICA includes Social Security and Medicare taxes. These taxes are shared between employees and employers, with a portion withheld from employee paychecks and the remaining portion paid by the employer.
Do payroll deductions change for employees in different states?
Yes. Payroll tax requirements vary by state and locality. Businesses with remote employees may need to manage different withholding rules, registrations, and reporting requirements.
Are wage garnishments considered payroll deductions?
Yes. Wage garnishments are legally required deductions taken from an employee’s paycheck to satisfy obligations such as unpaid debts, child support, or other court-ordered payments.
Why is accurate payroll processing important for businesses?
Accurate payroll processing helps businesses comply with tax regulations, avoid penalties, maintain employee trust, and ensure all required deductions and employer contributions are handled correctly.
Need Professional Bookkeeping Support?
If you’re looking for reliable bookkeeping help, Solvency Now provides professional services for businesses across the United States.
Bookkeeping Services Near You:
Or contact our team to learn how we can help keep your books accurate and up to date.