Payroll deductions: the four types, explained with a real pay stub

Payroll deductions are the amounts an employer subtracts from an employee’s gross pay before the money is paid out. Some are required by law, some the employee chooses, and some the employer initiates. The difference matters for two reasons. First, taxes: a pre-tax deduction lowers the wages that income tax, and sometimes Social Security and Medicare, are calculated on, while a post-tax deduction does not. Second, legality: the federal Fair Labor Standards Act and most state laws limit what an employer may take out and when written consent is needed. This guide sorts every common deduction into its category, walks through a real biweekly pay stub, gives you a calculator, and covers the garnishment, W-2 and state rules that come up in practice.

What are payroll deductions? The four types

Every line between gross pay and net pay on a stub belongs to one of these four groups. The table is the short version; the sections that follow explain each one.

Two things are not deductions even though they sit near them on a stub. The employer’s share of Social Security, Medicare and unemployment tax is paid on top of wages, not out of them; our employer payroll taxes guide covers those. And an expense reimbursement under an accountable plan is money paid back to the employee, so it is added to the check without being taxed, not taken from it.

Mandatory payroll deductions

Mandatory payroll deductions are the ones an employer must withhold whether or not the employee agrees. Getting them wrong is the costliest kind of payroll error because the employer is liable for the tax either way.

• Federal income tax. Figured from each employee’s Form W-4 and the IRS withholding tables in Publication 15-T. The amount depends on filing status, dependents, other income and any extra withholding the employee asked for. Our W-4 form guide explains each step; an employee who wants more or less withheld changes the W-4, not the payroll system.
• Social Security and Medicare (FICA). The IRS sets the 2026 employee rates in Publication 15 at 6.2% for Social Security on wages up to the $184,500 wage base and 1.45% for Medicare on all wages. The Social Security Administration has announced a $192,300 wage base for 2027. Employers also withhold the 0.9% Additional Medicare Tax on wages over $200,000 in a calendar year; there is no employer match on that part. The full history and math is in what is FICA.
• State and local income tax. Most states tax wages and publish their own withholding tables and employee certificate. Nine states, including Texas and Florida, have no wage income tax. Some cities, counties and school districts add a local tax; Ohio, Pennsylvania, Indiana, Maryland and New York City are the common ones.
• State program contributions. Several states take an employee share for state disability insurance or paid family and medical leave (California, New York, New Jersey, Washington, Massachusetts and others). These appear as SDI, PFL, PFML or similar codes.
• Court-ordered and agency-ordered garnishments. Child support income withholding orders, creditor garnishments, IRS and state tax levies, and federal student loan garnishments. The employer must honor them and is limited in how much it can take; see the garnishment limits below.

Pre-tax deductions: which taxes each one reduces

Pre-tax deductions are voluntary, but once elected they come out before taxes are figured. The important detail is that “pre-tax” does not mean the same thing for every benefit. IRS Publication 15 and Publication 15-B set out which taxes each one escapes. The 2026 limits below are from the IRS; employers should confirm them against the current year’s publication.

The 401(k) row is the one that confuses people. Publication 15 lists elective deferrals as “generally exempt” from income tax withholding but taxable for Social Security and Medicare. That is why a stub often shows two different taxable wage figures: federal income tax wages (after the 401(k)) and Social Security and Medicare wages (before it). Section 125 premiums, FSA and HSA contributions reduce both.

Two edge cases. First, an HSA contribution deducted from pay outside a Section 125 plan is an after-tax deduction; the IRS says it is subject to income tax withholding, Social Security, Medicare and FUTA, and the employee deducts it on their own return instead. Most employers run HSA payroll contributions through their cafeteria plan to avoid that. Second, a 401(k) deferral is exempt from withholding but a Roth 401(k) is not; same plan, different tax treatment, covered next.

Post-tax deductions

Post-tax deductions come out after every tax has been figured and withheld. They change net pay but not taxable wages, so they do not lower the tax bill now. Common ones:

• Roth 401(k) or Roth 403(b) contributions. Taxed now, withdrawn tax-free in retirement. The IRS W-2 instructions say designated Roth contributions stay in boxes 1, 3 and 5 and are reported in box 12 with code AA (401(k)) or BB (403(b)). The $24,500 deferral limit is shared between traditional and Roth amounts.
• Union dues. Taken under a dues check-off authorization. Employers often report them in box 14a of the W-2 as a courtesy, which the IRS lists as an example use of that box.
• Charitable giving. Workplace giving campaigns deducted per check. The employee may be able to deduct them on their return; payroll treats them as plain after-tax deductions.
• After-tax insurance premiums. Supplemental life, disability or accident coverage paid outside a cafeteria plan. Paying disability premiums after tax is a deliberate choice for some employees because it keeps any later benefit payments tax-free; that is a plan design question, not a payroll one.
• Loan and advance repayments the employee has agreed to in writing.
• Wage garnishments. Legally mandatory, but mechanically they are post-tax: the amount is figured on disposable earnings after required taxes, as explained below.

Group-term life insurance over $50,000 deserves its own note because it looks like a deduction but is not one. IRS Publication 15-B lets an employer provide the first $50,000 of group-term life coverage tax-free. The cost of coverage above that, valued from the IRS Table 2-2 rates, is “imputed income”: it is added to the employee’s taxable wages, is subject to Social Security and Medicare, and is reported in boxes 1, 3 and 5 and in box 12 with code C. Income tax withholding on it is optional. Illustrative example: a 45-year-old with $100,000 of employer-paid coverage has $50,000 of excess coverage; at the Table 2-2 rate of $0.15 per $1,000 per month, that is $7.50 of imputed income a month, or $90 a year, and the employee’s FICA on it is $6.89. No cash leaves the paycheck for the coverage itself; the extra tax does.

Employer-initiated deductions and the FLSA free-and-clear rule

This is the category that gets employers into trouble. Uniforms, tools, cash register shortages, breakage, customer walkouts, damaged company property and overpayments are all deductions the employer wants to make. Federal law allows some of them, but only within a hard floor.

Under 29 CFR 531.35, wages must be paid “free and clear.” The U.S. Department of Labor’s Wage and Hour Division explains in Fact Sheet #16 that an employer may not use deductions for items that are primarily for its own benefit or convenience to reduce a non-exempt employee’s pay below the federal minimum wage of $7.25 an hour, or to cut into the overtime the FLSA requires, in any workweek. The rule also applies if the employee pays the employer in cash instead of through payroll, and it applies even when the loss was the employee’s fault through ordinary negligence.

The Department of Labor’s own example: an employee earning $7.75 an hour who works 30 hours in a workweek can have at most $0.50 × 30 = $15.00 deducted for a uniform that week. An employee paid exactly $7.25 cannot be charged for a uniform at all, and cannot be required to buy it. Employers may spread a large cost over several paychecks, but each installment has to pass the same test in its own workweek.

The federal floor is low for most workers, which is why state law usually controls in practice. Take Jordan Lee, a barista at Northfield Coffee in Austin paid $18.25 an hour. A $60 uniform deduction in a 40-hour week leaves $670, or $16.75 an hour, well above $7.25, so federal law allows it. But Northfield is in Texas, and the Texas Payday Law requires Jordan’s signed written authorization for a lawful purpose before any deduction that is not court-ordered or required by law. Without the signed form, the deduction is unlawful even though the FLSA permits it. The state rules section lists how four large states handle this; many others have similar laws.

Three practical rules keep employer-initiated deductions safe:

1. Get a signed, specific, dated authorization before the first deduction, and keep it with the payroll records, which the FLSA requires you to retain for three years.
2. Check each workweek: hours worked × $7.25 (or the higher state minimum) plus any overtime premium must still be paid in full after the deduction.
3. Never deduct from an exempt salaried employee’s pay for shortages or damage. Improper deductions from salary can destroy the exemption and make the employee owed overtime; see exempt vs non-exempt.

Worked example: a biweekly pay stub with every deduction type

Emily Carter works in the kitchen at Northfield Coffee at $19.00 an hour. For the November 1–14, 2026 pay period, paid November 20, she worked 72 regular hours and 6 overtime hours, took 8 hours of PTO and was reimbursed $86.00 for supplies. Her gross pay is $1,777.00, but $86.00 of that is a non-taxable reimbursement, so her taxable wages start at $1,691.00. The stub below is the same one we annotate line by line in how to read a pay stub.

Totals: $112.64 of pre-tax deductions, $231.48 of taxes and $5.00 of post-tax deductions, which is $349.12 out of $1,777.00. About 80% of Emily’s gross reaches her bank account. The tax figures are estimates using 2026 IRS rates, and her real withholding would depend on every entry on her W-4. Notice the two taxable wage lines: the $67.64 401(k) deferral is missing from the income tax base but present in the FICA base, which costs Emily $5.17 of Social Security and Medicare on money she never saw. That is the correct result, not an error. For the broader picture of how gross becomes net, read gross pay vs net pay.

Had Northfield wanted to deduct $20 for a broken thermometer that week, the FLSA would have allowed it (Emily’s $19.00 rate is far above $7.25 and her overtime is paid in full), but Texas law would still require her written authorization first.

Payroll deductions calculator

Enter the taxable gross wages for one paycheck, the pre-tax and post-tax deductions, and your pay frequency and filing status. The calculator takes Section 125, HSA and FSA amounts off before all federal taxes, takes the traditional 401(k) off before federal income tax only, estimates federal income tax from the 2026 IRS Publication 15-T annual percentage method with only Step 1 of the W-4 completed, applies 6.2% Social Security and 1.45% Medicare, subtracts post-tax deductions and adds back any non-taxable reimbursement. The defaults reproduce Emily’s stub. Every figure is an estimate.

The calculator does not model W-4 Steps 2 through 4, local taxes, the Additional Medicare Tax, the Social Security wage base cutoff mid-year, or state garnishment limits. If you are starting from an hourly rate and hours rather than a gross figure, use the hourly paycheck calculator first. To lay the result out as a stub, the free pay stub templates have the same pre-tax, tax and post-tax sections.

Garnishment limits under the CCPA

A wage garnishment is a mandatory deduction ordered by a court or a government agency. Title III of the federal Consumer Credit Protection Act (CCPA), enforced by the Department of Labor’s Wage and Hour Division, caps how much can be taken from each paycheck. The Department’s Fact Sheet #30 sets out the rules.

Disposable earnings is the base for every limit. It is what remains after legally required deductions: federal, state and local taxes, the employee’s share of Social Security, Medicare and state unemployment or disability insurance, and legally required retirement contributions. Voluntary deductions are not subtracted, so health premiums, 401(k) contributions, union dues and charitable giving do not reduce disposable earnings.

Illustrative example using Emily’s stub: her disposable earnings are $1,691.00 − $231.48 = $1,459.52 for the two-week period (the reimbursement is not earnings, and her 401(k) and medical premium are voluntary, so they stay in). For an ordinary creditor garnishment the cap is the lesser of 25% ($364.88) or $1,459.52 − $435.00 ($1,024.52), so $364.88. A child support order with no other dependents and no arrears could take up to 60%, or $875.71. States may set lower limits than the CCPA, and when they do, the lower limit applies. Some states, Texas among them, bar wage garnishment for most ordinary consumer debts altogether, so confirm the rule with your state before processing a creditor order.

Order of precedence when there is more than one order: child support generally comes first. The IRS says it will release the amount needed for child support ordered before the employer received a tax levy, and the standard federal Income Withholding for Support order instructs employers that support withholding has priority over other legal process against the same income. After support, follow the IRS or state levy’s own rules, then creditor garnishments in the order received, stopping when the CCPA cap is reached. When the orders you hold exceed the cap, contact the issuing agencies rather than guessing. Two more rules from the CCPA: an employer cannot fire an employee because their wages are garnished for any one debt, and the federal limits do not override a state rule that protects more of the paycheck.

How payroll deductions show on the W-2

The year’s deductions decide what goes in each box of Form W-2, and the W-2 deadline of January 31 leaves little time to fix misclassified ones. From the IRS General Instructions for Forms W-2 and W-3:

• Box 1 (wages, tips, other compensation) leaves out elective deferrals to a 401(k) or 403(b) and Section 125 pre-tax benefits. It includes the taxable cost of group-term life over $50,000 and any Roth contributions.
• Boxes 3 and 5 (Social Security and Medicare wages) include 401(k) deferrals “even though the deferrals are not includible in box 1,” but leave out Section 125 premiums and cafeteria-plan HSA contributions. Box 3 stops at $184,500 for 2026; box 5 has no cap.
• Box 10 reports dependent care benefits, including any amount over the exclusion.
• Box 12 codes: D traditional 401(k) deferrals, E 403(b), AA Roth 401(k), C taxable group-term life over $50,000, W HSA contributions including the employee’s pre-tax cafeteria-plan amounts, and DD the total cost of employer-sponsored health coverage (employer plus employee share). The IRS states the code DD amount is not taxable; it is informational.
• Box 14a is the employer’s free-text box. The IRS gives union dues, health insurance premiums deducted, uniform payments and state disability taxes as examples.

On Emily’s W-2, box 1 will be lower than boxes 3 and 5 by exactly her 401(k) deferrals for the year, her Section 125 premiums will be missing from all three boxes, and her $5.00 charitable deductions will not appear at all. If an employee’s last pay stub of the year does not reconcile to the W-2 this way, a deduction was coded in the wrong category.

State rules on written consent

Federal law sets a floor; state wage payment laws decide what employers can actually deduct and how consent must be documented. Four examples, checked against the statute or the state agency:

• Texas. Labor Code section 61.018 (the Texas Payday Law, enforced by the Texas Workforce Commission): an employer may not withhold or divert any part of wages unless it is ordered to by a court, authorized by state or federal law, or “has written authorization from the employee to deduct part of the wages for a lawful purpose.” Shortages, uniforms and breakage all need that signed authorization.
• New York. Labor Law section 193 allows only deductions required by law, deductions the employee authorizes in writing that are for the employee’s benefit (insurance, pension and health benefits, charitable contributions, union dues, transit, parking, gym, tuition, child care and similar items), and regulated recovery of overpayments and advances. Deductions for shortages, breakage or fines are not on the list and are not permitted. Employees may revoke an authorization in writing, and the employer must stop within four pay periods or eight weeks, whichever is sooner.
• California. Labor Code sections 221 and 224, as explained by the Labor Commissioner’s Office (DLSE), allow deductions required by law and deductions authorized in writing for insurance premiums and benefit contributions. Deductions for cash shortages, breakage or lost equipment are unlawful unless the employer can show dishonesty, a willful act or gross negligence. Required uniforms and business expenses are the employer’s cost under section 2802. A loan may be repaid by authorized installments, but the employer may deduct only one installment from the final paycheck, not the whole balance.
• Illinois. The Wage Payment and Collection Act (820 ILCS 115/9) permits deductions required by law, for the employee’s benefit, under a valid wage assignment or deduction order, or made with the employee’s “express written consent, given freely at the time the deduction is made.” The Illinois Department of Labor says that means a blanket consent signed at hire does not cover a later shortage or damage deduction, and that cash advance repayments during employment cannot exceed 15% of wages per check.

Other states have their own versions, and many bar deductions from a final paycheck for unreturned keys, uniforms or tools. Before adding any employer-initiated deduction, read your state’s wage payment law or ask the state labor department, and build the consent form into new hire paperwork so it exists before it is needed.

Common payroll deduction mistakes

• Treating a traditional 401(k) as FICA-exempt. It is not. Underwithholding Social Security and Medicare leaves the employer owing both shares plus penalties.
• Running HSA deductions outside the cafeteria plan. They become after-tax and the employee loses the FICA saving.
• Deducting without signed consent in a state that requires it, or relying on a hire-date form in a state like Illinois that requires consent at the time of the deduction.
• Cutting below minimum wage or into overtime with a uniform, tool or shortage deduction. Check each workweek, not the pay period.
• Garnishing from gross instead of disposable earnings, or ignoring a lower state limit.
• Letting a cancelled deduction keep running after an employee drops a benefit, pays off a loan or a garnishment is released. Reconcile the deduction register every quarter.
• Deducting from an exempt employee’s salary for shortages or damage, which can cost the exemption.
• Forgetting imputed income for group-term life over $50,000, which shows up as a W-2 correction in January.
• Holding withheld amounts too long. Taxes, 401(k) deferrals and garnishments are other people’s money; remit them on the schedule the agency, plan or order sets. Our guide to how to process payroll covers the deposit calendar.

Most of these are prevented by one habit: every deduction has a document behind it (a benefit election, a signed authorization or a court order), a category (pre-tax or post-tax) and an end date, and someone checks the register against the stubs each quarter.

Frequently asked questions