Imagine a new worker walks up to your desk with his first pay stub. He looks confused. His job offer said $80,000. The money in his bank account is much less. He wants to know where all that money went.
Lena has this talk a dozen times every year. The answer is always the payroll deductions. The gap between what a company promises a worker and what actually hits their bank account is filled by taxes the government asks for, benefits the worker chose, and sometimes a court order that is hard to explain. Some payroll deductions happen before taxes are counted and some happen after. Some payroll deductions are required by law, while others are up to the worker.
What are payroll deductions?
A payroll deduction is any amount an employer takes out of an employee's pay before giving them their net pay. Net pay is the take-home money. Gross pay is the amount a worker earns in a pay period.
Payroll deductions are split into two groups that often confuse people because they overlap:
Pretax vs. Post-tax tells you when the payroll deduction happens compared to tax math. Pretax payroll deductions come out before income and payroll taxes are calculated. This makes the taxable income lower. Post-tax payroll deductions come out after.
Mandatory vs. Voluntary tells you if the worker has a choice. Mandatory deductions are required by law. Voluntary deductions are things the worker picks, like a 401(k) contribution.
One single payroll deduction can fit into both groups at once. A traditional 401(k) contribution is voluntary because the worker chose it and it is also pretax because it comes out before taxes. A Roth 401(k) contribution is post-tax. Keeping these two ideas separate makes payroll much easier to understand.
What are pretax payroll deductions?
Pretax payroll deductions are amounts taken from pay before anyone calculates taxes. Because these amounts lower the wages that taxes apply to. This usually means a smaller tax bill and a little more take-home pay than the cost of the deduction would seem to show.
Common pretax payroll deductions include:
Traditional 401(k) and 403(b) contributions. For 2026, workers can put away up to $24,500. People aged 50 and older can put in more.
Health Savings Account (HSA) contributions. The 2026 limits are $4,400 for one person and $8,750 for a family if you have a deductible health plan.
Flexible Spending Account (FSA) contributions. The 2026 health FSA limit is $3,400.
Health, dental and vision premiums that the employer pays for through a Section 125 plan.
Commute and transit for travel and parking costs.
Not every pretax payroll deduction lowers every tax. For example, some 401(k) contributions do not have income tax, but they still have Social Security and Medicare tax. This is where manual payroll goes wrong. If a spreadsheet has a limit, it will make a paycheck incorrect.
How do post-tax deductions work?
Post-tax deductions come out of pay after taxes are already calculated and taken out. These do not lower the income, so they do not lower the tax bill for the worker.
Common post-tax deductions include:
Roth 401(k) contributions. These are taxed now so the money is tax-free when you retire.
Wage. Child support orders. These are not a choice. They are taken after taxes.
Union dues in workplaces.
Some voluntary benefits like life insurance or disability insurance premiums.
Money to charity through payroll.
A pretax dollar lowers the wages, but a post-tax dollar does not. A $200 contribution costs less in take-home pay if it is a pretax payroll deduction than if it is post-tax. This is because the pretax version also lowers the tax withholding.
Which payroll deductions are mandatory?
Mandatory deductions are the ones an employer must take out no matter what the worker wants.
Federal payroll taxes (FICA). Every employer takes out FICA. This pays for Social Security and Medicare. For 2026, the rates are 6.2% for Social Security and 1.45% for Medicare. That is a total of 7.65% taken from the worker, and the employer pays that amount too. Social Security tax only applies to wages up to $184,500 for 2026. Medicare has no limit, and an extra 0.9% Medicare tax applies to wages over $200,000.
Income tax withholding. Employers take out income tax based on the workers' Form W-4. Most states and some local areas also require income tax withholding. State and local rules change a lot, so you should check them separately.
Involuntary garnishments. If a court or agency says an employer must take money for a debt, child support, or a tax bill, the employer must do it. Federal law limits how much can be taken. Under Title III of the Consumer Credit Protection Act, a normal garnishment cannot be more than 25% of what a worker can spend or the amount their spendable pay is over 30 times the federal minimum wage. Child support and tax bills have higher limits.
Mandatory deductions are not up for debate. If you get these wrong, you can get into trouble. An old wage limit or a wrong garnishment calculation all fall on the payroll team.
What counts as a voluntary payroll deduction?
Voluntary deductions are amounts a worker chooses to have taken out. Usually the worker must give written permission. These can be post-tax.
Common voluntary deductions include:
- Retirement contributions (401(k) 403(b) Roth 401(k))
- Health, dental and vision insurance premiums
- HSA and FSA contributions
- Life and disability insurance
- Commuter benefits
- Giving to charity through payroll
An employer usually cannot take a voluntary deduction without the worker saying yes. These choices can change during enrollment or when a worker has a big life change. Every change must go into payroll correctly. The next paycheck will be wrong.
Mandatory vs. Deductions at a glance
Deduction | Mandatory or voluntary | Pretax or post-tax | Reduces taxable income? |
Social Security & Medicare (FICA) | Mandatory | Post-tax (statutory) | No |
Federal/state income tax | Mandatory | Post-tax (statutory) | No |
Wage garnishment/child support | Mandatory | Post-tax | No |
Traditional 401(k) | Voluntary | Pretax | Yes |
Roth 401(k) | Voluntary | Post-tax | No |
HSA / FSA | Voluntary | Pretax | Yes |
Health insurance premium (Section 125) | Voluntary | Pretax | Yes |
Union dues | Voluntary | Post-tax | No |
How do you calculate payroll deductions step by step?
Payroll deductions must follow an order. This order is important because pretax payroll deductions change the wages used to calculate taxes. If you do them in the wrong order, the tax withholding will be wrong.
The right order:
- Start with the pay for the pay period.
- Take out pretax deductions (401(k), HSA, FSA, premiums). This shows the wages.
- Calculate and take out statutory taxes (FICA and income tax withholding) using those taxable wages.
- Take out tax deductions (Roth amounts, garnishments, union dues).
- Whatever is left is the pay.
Here is an example of this order. Marco earns $80,000 a year. He gets paid twice a month, so his gross pay is $3,333.33 each time. He puts 5% into a 401(k) and $150 into his HSA.
- Gross pay: $3,333.33
- Deductions: $166.67 (401(k) 5%) + $150.00 (HSA) = $316.67
- Income-tax wages after pretax: $3,333.33 − $316.67 = $3,016.66
- FICA wages: 401(k) money is still subject to FICA, so only the HSA lowers the FICA base: $3,333.33 − $150.00 = $3,183.33
- FICA (7.65% of FICA wages): $3,183.33 × 0.0765 = $243.52
- Income tax withholding: This changes based on the W-4; let us assume $400.00 for this example
- Tax deductions: assume $0 in this example
- Net pay: $3,333.33 − $316.67 (pretax) − $243.52 (FICA) − $400.00 (income tax) = $2,373.14
The FICA amount is lower than it would be on the full $3,333.33 because the pretax deductions were taken out first.
Where deductions quietly go wrong
Most payroll mistakes are errors in order or data that add up:
- Order mistakes. Taking a pretax deduction before taxes or missing a pretax deduction ruins every other number.
- Missed rate or choice changes. A worker moves their 401(k) from 5% to 8%. The old rate stays in the system.
- Old statutory limits. The rules for contribution caps and Social Security change every year. If a spreadsheet uses year numbers, it will take out too much or too little money.
- Different state rules. A worker moves from a state with no income tax to a state that has it and the payroll setup does not change.
- Garnishment math. Calculating what a worker can spend and following caps is easy to mess up by hand. The penalties for these mistakes are real.
How technology helps
Payroll errors often happen because information is kept in places. Benefits choices are in one system, tax info is in another. The actual payroll run is in a third. When these systems do not talk to each other, a change in a benefit or a new limit might not make it to the paycheck.
Keeping HRIS, benefits, and payroll in one place is how you fix those mistakes. This way, a 401(k) change or a hire's tax setup moves right into the next payroll run. Niural connects all that data. Checks it before the payroll goes out. Niural uses an AI tool called EMMA to look over the payroll before the run starts. EMMA flags missing rate changes so a missed election or an old contribution cap is caught before you send out the checks. It is much better to catch these things
If your team spends much time fixing deduction errors and checking things manually, you should see how Niural manages payroll, deductions, limits, and validation.
Frequently Asked Questions
What is the difference between pretax and posttax deductions?
Pretax deductions are taken out of pay before you calculate taxes. This makes the taxable income lower. Post-tax deductions are taken out after taxes are done, so post-tax deductions do not lower income.
Are payroll deductions the same as payroll taxes?
No, they are not the same. Payroll taxes, like FICA and income tax withholding, are one kind of deduction. These are the ones the government requires. Other deductions include things that people choose, like insurance premiums or retirement contributions.
What are the mandatory payroll deductions in the U.S.?
The mandatory payroll deductions include Federal FICA taxes (Social Security and Medicare), federal income tax withholding, state and local income taxes, and any court orders like garnishments. You have to take these out no matter what the employee wants.
Do pretax deductions reduce Social Security and Medicare taxes?
Some do, and some do not. Health premiums under a Section 125 plan and HSA contributions usually lower FICA wages. However 401(k) contributions only lower federal income tax. You still have to pay Social Security and Medicare tax on 401(k) contributions.
In what order are payroll deductions applied?
First you start with pay. Then you take out deductions to find the taxable wages. After that you take out taxes, followed by post-tax deductions. Whatever is left is the pay. The order is important because pretax deductions change the amount of wages that taxes are based on.
How much of an employee's paycheck can be garnished?
For garnishments under federal law the limit is 25% of disposable earnings or the amount that disposable earnings are over 30 times the federal minimum wage, whichever is less. Child support and tax levies have higher limits. Some states also have rules for garnishments.
Disclaimer: This article is for purposes only and does not constitute legal, tax, payroll or accounting advice. Figures reflecting the 2026 tax year are subject to change. Federal, state and local requirements vary. Consult legal, tax or payroll professionals for guidance specific to your business.
