Typical paycheck deductions include the employee's portion of Social Security and Medicare under the Federal Insurance Contributions Act, known as FICA; federal income tax withholding, based on the employee's W-4 form; and state and local income taxes as applicable, notes SurePayroll.com. Other possible deductions include the employee's portion of medical, dental, vision, life and disability insurance premiums and payments to 401K, retirement or flexible spending accounts. Deductions for union dues and charitable donations are also possible, according to U.S. Trust.
Employers typically cover any required workman's compensation contribution, but some states require employee payroll deductions to help fund disability insurance programs, notes the JA/American Express Personal Finance Center. Social Security is the tax that finances the federal system of insurance available to qualified citizens, and Medicare deductions finance hospital insurance and medical assistance to Social Security recipients. The amount deducted for Social Security depends on income and in 2016 is 6.2 percent of earnings paid by both employee and employer, per the U.S. Social Security Administration. The deduction rate for Medicare's hospital insurance is 1.45 percent for both employee and employer. The maximum yearly Social Security deduction for an employee is $7,347 in 2016.
Payments to retirement and flexible spending accounts and for medical insurance are usually pretax deductions, which reduce the amount of taxable income, clarifies U.S. Trust. Flexible spending accounts enable employees to deduct a specified amount from each paycheck to pay for projected out-of-pocket medical expenses, such as insurance co-pays and deductibles, eye glasses or other medical equipment, that insurance does not cover. Flexible spending accounts cannot exceed $2,250 per year according to HealthCare.gov.