A paycheck is about a lot more than the weekly total. Many employees aren't familiar enough with payroll taxes to be able to assess the rest of the information. Some become concerned that too much or not enough is being taken out of their weekly pay. To properly address their concerns, you need to understand payroll deductions. Here is a quick primer.
Federal tax deductions. This information is determined by the employee's completion of Form W-4. Employees select their filing status and number of dependents. Generally, the higher the number of dependents they claim, the less federal income tax will be withheld from their paycheck. An employee who claims Single/0 will typically have the most federal income tax withheld from each paycheck.
State tax deductions. Some states do not have state income taxes. If your state does, many employees claim the same information on their state tax forms as they do on their federal tax forms. However, in some situations, it may make sense for employees to complete a separate state withholding form to select different withholding amounts for state and federal taxes.
OASDI, FICA, and Medicare. These deductions relate to Social Security and Medicare taxes. Depending on your payroll system, they may appear as separate line items or under a broader Social Security category. If an employee asks what OASDI stands for, you can explain that it means "Old-Age, Survivors, and Disability Insurance."
Insurance contributions. Unless your company pays 100 percent of employee insurance premiums, the amount employees contribute toward their health insurance will appear as a separate deduction on their paycheck.
Retirement and additional accounts. Other payroll deductions may include 401(k) contributions, flexible spending accounts (FSAs), health savings accounts (HSAs), and additional insurance coverage such as dental or vision plans.
Are you prepared to explain what's on your employees' paychecks?
At Pay Tech, our clients have access to all of the necessary payroll forms and resources on our website.
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