Payroll Deductions Explained: Complete Guide to Your Paycheck

Understanding Payroll Deductions

Every paycheck has money taken out for various taxes, insurance, and savings. Here's what each deduction means and how it's calculated.

Mandatory Tax Deductions

Federal Income Tax

Withheld based on your W-4 form selections:

• Filing status (Single, Married, Head of Household)
• Number of allowances/adjustments
• Additional withholding amounts

Social Security (OASDI)

• Rate: 6.2% of gross pay (employer matches 6.2%)
• 2026 Wage Base: $168,600
• Purpose: Funds retirement, disability, and survivor benefits

Medicare

• Rate: 1.45% of all gross pay
• Additional Medicare Tax: 0.9% on earnings over $200,000
• Purpose: Funds healthcare for seniors and disabled individuals

State Income Tax

• Varies by state (0% to 13.3%)
• Some states have flat rates, others have progressive brackets
• 9 states have no income tax

Local Taxes

Some cities and counties impose additional payroll taxes.

Pre-Tax Deductions

These reduce your taxable income:

• 401(k) contributions — Up to $23,500 in 2026 ($31,000 if 50+)
• Traditional IRA — Up to $7,000 ($8,000 if 50+)
• Health insurance premiums — Employer-sponsored plans
• HSA contributions — Up to $4,300 individual, $8,550 family
• FSA contributions — Up to $3,300

Post-Tax Deductions

Taken after taxes are calculated:

• Roth 401(k) contributions
• Roth IRA contributions (if through payroll)
• Life insurance (employer-provided over $50,000)
• Disability insurance (in some states)
• Union dues
• Wage garnishments

How to Read Your Deductions

Look for these abbreviations on your pay stub:

• FIT / FWT — Federal Income Tax
• SIT / SWT — State Income Tax
• OASDI / SS — Social Security
• MED — Medicare
• 401K — Retirement contribution
• DEN / VIS — Dental / Vision insurance