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What Are Itemized Payroll Deductions?

what are itemized tax deductions

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Itemized payroll deductions include both mandatory and discretionary voluntary deductions that you take out of employees’ paychecks. Mandatory deductions are those that are legally required. Discretionary voluntary deductions are those you offer and the employee accepts. The amount of each deduction varies by employee, as federal and state laws affect employees differently.

Federal Taxes

Federal payroll deductions include federal income tax, Social Security tax and Medicare tax. Federal income tax is used to pay for national programs including law enforcement, foreign affairs and defense. Social Security tax provides benefits for retirees and their dependents and the disabled and their dependents. Medicare tax provides hospital benefits to qualified persons when they reach age 65. All employees must pay federal income tax unless they meet the qualifications for exemption as stated on the W-4 form. You use employees' W-4 forms and the Internal Revenue Service Circular E tax-withholding tables to compute each employee's federal income tax withholding. At the time of publication, Social Security is withheld at 4.2 percent of taxable wages up to $110,100 for the year, and Medicare taxes are withheld at 1.45 percent of all taxable wages.

State and Local Deductions

In most states, employees must pay state income tax unless they meet the state’s criteria for exemption. State income tax is used to pay for state programs such as health, education, and rehabilitation and correctional facilities. The state has specific withholding rules for resident and nonresident workers, so contact the state revenue agency for guidelines before you begin withholding the tax. Some local governments charge local income tax in the form of city or county taxes, which are used to fund local programs. Contact the state revenue agency or your local tax assessor for local income tax withholding guidelines, if applicable.

Wage Garnishment

If you receive a wage garnishment on an employee from a legal institution, such as the Internal Revenue Service, a state taxation agency, or a court, you must honor it. A wage garnishment is a legal strategy that creditors use to collect payment from delinquent debtors. Four states do not allow regular creditors to garnish wages: Pennsylvania, Texas, North Carolina and South Carolina. All states, including those four, allow wage garnishment for back taxes, federal student loans and child support.

Discretionary Voluntary Benefits

Category: Taxes

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