Payroll Deduction

Payroll deductions are amounts subtracted from gross pay before the employee receives their net pay — falling into mandatory deductions (federal and state taxes, Social Security and Medicare, court-ordered garnishments) and voluntary deductions (health insurance premiums, retirement contributions, FSA and HSA contributions, life insurance premiums, union dues). The most operationally significant distinction is pre-tax versus post-tax: pre-tax deductions reduce the employee's taxable income and thus their tax liability, while post-tax deductions are taken from already-taxed income. Payroll systems must correctly classify each deduction type and apply the right sequence — mandatory deductions before voluntary, and garnishments in court-specified priority order when multiple garnishments exist.