Payroll deductions

🇺🇸 Many deductions come from one's gross salary or wages to determine the amount on the paycheck.  summarizes the most common of these deductions, and shows which deductions lead to intermediate results such as Social Security and Medicare (FICA) wages and IRS Form W-2 Box 1.

Instances of 401(k) should be read to include 403(b) and 457(b) plans, and the federal Thrift Savings Plan.

Gross pay
Start with:
 * 1) Gross Pay: The total amount of remuneration before removing taxes and other deductions.

See Fringe Benefit Exclusion Rules for other deductions that reduce FICA wages, including

FICA salary/wages
Subtracting all the above from gross pay gives your FICA salary/wages: The amount on which your Social Security and Medicare taxes are based. This amount appears in Form W-2 box 5. The amount subject to Social Security taxes, which is the same value except capped at the Social Security Wage Base ($160,200 in 2023), appears in box 3.

From there, subtract traditional Elective Deferrals and any mandatory pre-tax pension contributions

W-2 box 1 amount
Those subtractions from FICA pay give your W-2 box 1 amount W-2 box 1 is what goes on the Form 1040 line for "Wages, salaries, tips, etc." At the end of the year, the per-paycheck total may be increased by the amount of taxable employer-paid Group-Term Life Insurance and any FICA tax on that amount will be payable with the annual tax return.

You may have elected to make various contributions that don't reduce the W-2 box 1 amount, but do reduce your paycheck amount. These include

Net before tax and withholding
Subtracting those amounts gives your Net before tax and withholding

The final group of subtractions are the FICA taxes, and withholding amounts based on the Form W-4 you have given to your employer.

Withholding for Supplemental Wages (bonuses, overtime pay, taxable fringe benefits, etc.) often ignores the W-4 and uses a fixed withholding rate.

Amount on the paycheck
Subtracting those amounts gives your Amount on the paycheck that you cash (or receive via direct deposit). This is often referred to as net pay or take-home pay.

All the above assumes sufficient gross pay to accommodate all deductions, and no interference from government-ordered deductions (for example, garnishment or alimony). When an employee’s gross pay is insufficient to permit all deductions, the order in which authorized deductions are to be processed is covered by the Order of precedence from gross pay.