Name: Tips and Tricks to Understanding Payroll Deductions
Uploaded: 2026-04-02T11:28:08.841Z
Duration: 12 min 8 s
Description: Tips and Tricks to Understanding Payroll Deductions

Transcript for "Tips and Tricks to Understanding Payroll Deductions": Hi everybody, thanks so much for joining me on this payroll deductions webinar. My name is Robin Paul, and I am a sales learning instructor here at Paychex. So let's go ahead and start, but before we do that, please note that this presentation does not constitute any legal advice, and it is only for informational purposes only. All right, so here is what we are going to talk about today. We're going to talk about what payroll deductions are, and then why their accuracy really matters into your business. We'll talk about the differences between mandatory, voluntary, pre tax, and post tax deductions. We're also going to show you how to calculate some of these deductions step by step when it comes to gross to net, and then finally we will discuss some practical strategies on how to simplify payroll and avoid costly mistakes. All right, so here we go. What are payroll deductions? Basically these are the things that are taken out of our checks and they're really not in our net pay. They're given either to the federal government or the state or in the form of taxes or they could be given to a third party as like an insurance company in the form of, you know, a health insurance premium. All right, but those are basically what deductions are. They're things that come out of our checks and they're given to someone else. All right, They are some of the examples that are on the screen right over here. So the most common example would be your tax withholdings, things like your federal, state, local income tax withholdings, as well as your FICA, which is your Social Security and your Medicare. They could also be benefit premiums. So if you have, if you're working for an employer and you're paying for your health insurance, those health insurance premiums that you end up paying for would come out of your check-in the form of medical, dental, or even vision. They could also be retirement plan contributions, and these are your contributions as an employee to retirement plans, such as a four zero one ks plan, or they could even either also be court ordered payments, things like garnishments, all right, or child supports, or even legal obligations. Okay, those are some of the examples. When it comes to deductions, there's also the mandatory and then there's the voluntary deductions. So when you think about mandatory deductions, those are deductions that are mandated by law that they should really come out of your check. And in most cases, they're your taxes. All right, so they're your FICA, your federal income tax, your state or local income tax, if you're in a state that takes out state income tax, and then you've got your garnishments, things like tax liens or alimony or child support. And then in some cases, there are some states like Alaska, New Jersey, and Pennsylvania, where your unemployment taxes comes out of the employee's check as well. And those are also mandatory taxes that come out of your check. All right, so those are all your mandatory deductions. Your voluntary deductions, the examples would be things like your health insurance, or even life insurance or retirement plan contributions, but these are examples of basically deductions that employees voluntarily agree to come out of their checks. All right. Then there's your pre tax and your post tax deductions. So in addition to mandatory and voluntary, basically your post tax deductions, the difference between the post tax and the pre tax, is that the pre tax deductions are exempt from all taxes. So in a nutshell, before calculating your FICA tax and your federal and your state income taxes, if you have any of your pre tax deductions in there, those have got to come out before out of your wages, out of your gross, before you get your adjusted gross, which is what is used to calculate your deductions or your taxes. All right, and then your post tax deductions, those are basically, they don't have any effect on your on your taxes, so they come out after everything is calculated after your taxes are calculated, which is why they're called post tax deductions. And those could be examples like wage garnishments or even union dues or even things like charitable contributions. So how do you calculate some of these deductions? Basically, what you're looking at in front of your screen is a basic formula for calculating your net pay. So it starts off with your gross wages, and then your mandatory and your voluntary deductions come out, and then what is left is your actual net pay. So here is an example of what these look like. When you've got your mandatory deductions, which are basically your taxes, all right, your Social Security is a 6.2%, your Medicare is 1.45%, and that is up to $200,000 and anything above that you got to take out an additional 0.9%, And then your federal and state income taxes, that's all based off of whether you're married or single, or whether you're claiming one, two, or three, or zero exemptions, all of that appears on your W-four. But those taxes are basically all of your mandatory deductions, so those come out of your gross, and then you've got your voluntary deductions, which are your pre tax and post tax. So this is where it gets a little complicated, your pre tax deductions. So basically, to figure out your taxes, you would first have to back out your pre tax deductions from your gross to get something called your adjusted gross. And basically that adjusted gross is what is used to calculate all your taxes. So then once your taxes have been figured out, then your deductions come out, right? So then your health insurance, your four zero one contributions come out, as well as all your garnishments and your union dues and your Roth four zero one contributions. And then whatever's left over is your net pay, That's your take home pay. So that's basically how to calculate those deductions all the way down to your net pay. When it comes to, as you can imagine, when it comes to calculating all of this, it's critical to double check all of these calculations because miscalculations could lead to penalties and then fines, both for the business as well as for the employees as well. So here are some common deduction mistakes. Probably the most common one is misclassifying deductions as pre tax versus post tax. So you could have a health insurance, and as a business owner, you might think that that's exempt from all taxes, as in pre tax, but it may not be exempt. And so if you misclassify one of those deductions thinking that they're really pre tax, and they really should be post tax, that could cause a problem. Another one is if you're paying overtime or bonuses, you've got to figure out certain taxes based off of those amounts, and if you misclassify or miscalculate the taxes there, that could be another problem. Another one is if you forget to update an employee's tax status, so let's say they are single and they just got married and they have not updated their W-4s or their tax status, if you forget to update that in your records, that could lead to miscalculating these taxes, and that could lead to errors in the long run. And then finally, not documenting your voluntary deductions incorrectly, right? So if you don't document them correctly, that is going to ultimately lead to errors and penalties and fines. All right? So what happens if you mess up? If basically you mess up, in a nutshell, you get penalties and you get fines, and even worse, that could lead to an audit where now the IRS looks at all your books and that could even more problems. So that's what happens basically if you mess up. Penalties, fines, audits for both the businesses, as well as the employees. So what sets Paychex apart? Because basically what we are is that we're essentially a company that is a total business solution for an employer. As in, if you're a baker, all we really want you to do is bake. We'll take care of everything else for you. We'll help you manage your business so you can focus on doing what you do best, which is running your business and baking. We're essentially an expert enabled technology company, and we help more than 800,000 business owners succeed at every stage. So when you're with us, you get peace of mind and confidence knowing that you're safe from potential audits and penalties. So in a nutshell, like I said earlier, if you're a baker, all we really want you to do is focus on that, doing what you do best. Let us take care of all of this for you. So here's what we talked about in summary. We talked about what payroll deductions were and why they matter for your business, talked about the differences between mandatory, voluntary, pre tax this post tax deductions as well, talked about how it's important to make sure you calculate them step by step accurately, and then shared some common mistakes that could lead to fines and problems in the long run, even an audit. So thank you once again for joining me on this Understanding Payroll Deductions webinar. If you'd like to speak with one of our experts about how paychecks can help you as far as payroll or HR, please just go ahead and click on the Talk with our team button on the top of your screen, and we will definitely get in touch with you. As a reminder, you can also access a printable copy of the presentation deck in the Docs tab of your console along with other related resources. Thanks everybody, and have a great day.