Payroll deductions or deductions is a payment that the employer makes on their employee’s behalf, out of their earnings. Some deductions are mandatory by law while some others are voluntary. These deductions are the reason why your take home salary is different from what is mentioned as the salary.
According to governmental regulations, the employer has to withhold payroll taxes from the employee’s gross salary. Failing to do so will lead to lawsuits and fines.
Examples of mandatory deductions include:
Although not mandated by law, some companies make these deductions voluntarily, making it convenient for the employee, or in some cases employers.
Examples of voluntary deductions include:
Payments for purchases of company merchandise (computers or other retired equipment)
Tuition or professional certification fee deductions
To provide benefits without increasing the tax, employers can make pre-tax deductions. These include:
These deductions are made after the employee has paid tax on their income. These include:
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