Payroll Deductions

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What are total earnings?

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Total earnings, also known as gross pay, is the total money paid to an employee during an accounting period, including salary, commissions, and bonuses.

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What are payroll deductions?

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Payroll deductions are involuntary and voluntary amounts withheld from an employee’s total earnings, reducing gross pay to arrive at net pay or take-home pay.

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What are involuntary deductions?

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Involuntary deductions, also known as mandated or statutory deductions, are required by law and include income tax, Social Security tax, Medicare tax, and other court-mandated garnishments.

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What are voluntary deductions?

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Voluntary deductions are optional and include employee benefits such as retirement plans, health insurance, life insurance, and union dues.

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What are pre-tax deductions?

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Pre-tax deductions are amounts deducted from an employee’s total earnings before any taxes are withheld, reducing gross pay before taxes are calculated. Examples include health insurance premiums and 401(k) contributions.

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What are post-tax deductions?

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Post-tax deductions are amounts deducted from an employee’s earnings after all necessary taxes have been withheld. Examples include Roth 401(k) contributions, union dues, and wage garnishments.

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What is the most common involuntary deduction?

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The most common involuntary deduction is for payroll taxes, which include federal income tax, Social Security tax, and Medicare tax.

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How is federal income tax calculated?

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Federal income tax is calculated using progressive tax brackets, where the tax rate increases for each higher income range. Deductions and exemptions are applied to arrive at taxable income.

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What is Form W-4?

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Form W-4 is a Withholding Allowance Certificate where employees declare the number of allowances they want to claim, affecting the amount of income tax withheld from their paycheck.

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What is FICA?

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FICA stands for Federal Insurance Contributions Act, which includes Social Security and Medicare taxes withheld from an employee's paycheck, with matching contributions from the employer.