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Employee Earnings Deductions

7 May, 2015 - 17:00

Gross pay is total earnings of an employee before any deductions. Net pay is the ammount an employee receives after all deductions. Deductions are commonly made for federal, state, and local income taxes. While state and local income taxes vary from state to state, all employers must withhold federal income and FICA taxes. Deductions can be made for voluntary items such as health insurance, charitable contributions, pension fund contributions and union dues.

FICA TAXES

The Federal Insurance Contributions Act requires most employers to withhold FICA taxes from their employees. The purpose of FICA taxes is to use them for federal programs that provide medicare benefits, old-age and disability benefits, and survivor benefits. The amount of FICA taxes that may be collected is subject to a ceiling, making it necessary for the employer to keep track of cumulative earnings of each employee.