Mandatory vs. Voluntary Payroll Deductions

Michael Marz for Demand Media writes: If you work as an employee as opposed to being self-employed, you're probably well aware that you get paid less than your gross salary because of the payroll deductions your employer must make. Some of these deductions are mandatory, meaning the law requires your employer to withhold some of your wages, while others are voluntary. But despite the fact you can't eliminate the mandatory payroll deductions entirely, you may be able to reduce the amount withheld for some of them.

MANDATORY: INCOME TAXES

Federal, state and local income tax withholding makes up the most substantial payroll deduction for many employees. Your employer can face severe penalties for not withholding part of your salary for income taxes, but you can reduce the amount of each deduction by adjusting your W-4. Employers use the information you provide on the form to calculate the appropriate amount to withhold. Generally, by increasing the number of allowances you claim, your employer will start withholding less tax from your wages. However, claiming too many allowances without a basis for it, such as not planning to take the credits or deductions listed on the W-4 that warrant an allowance increase, can cause you to underpay your income taxes. And if the underpayment is substantial, you may end up owing money to the IRS and other tax agencies with your tax return or even have to pay estimated tax penalties on top of it.

MANDATORY: FICA

The Federal Insurance Contribution Act, more commonly known as FICA, requires your employer to withhold a fixed percentage of your salary to cover the contributions you must make to Social Security and Medicare. These mandatory employment taxes are one of the payroll deductions that you'll just have to live with since there's no way to adjust the amounts withheld. As of this writing, the federal government imposes a 6.2 percent Social Security tax on a portion of your annual salary and a 1.45 percent Medicare tax on your entire salary.

MANDATORY: WAGE GARNISHMENTS

If any of your creditors obtain a court judgment against you for unpaid debts, most states allow them to collect on it through wage garnishments. However, the percentage of your salary they can force your employer to deduct depends on the laws of your jurisdiction. Your wages can also be garnished for other types of debts like unpaid child support obligations, back taxes owed to the IRS, a state or local government and for any other legally enforceable debt.

VOLUNTARY: RETIREMENT & INSURANCE

Many payroll deductions are voluntary, meaning you can have your employer reduce or eliminate them, and tend to cover payments for a number of employment related benefits. These include the contributions you make to tax-deferred retirement plans, pre-tax commuter benefits, group health insurance premiums and payments to your employer for products or services they provide you with.