Common Paycheck Deductions Explained

Understanding Your Paycheck Deductions in 2025

When you receive your paycheck, the amount deposited in your bank account (your net pay) is almost always less than your gross pay. The difference consists of various deductions—some mandatory, others voluntary. Understanding these deductions is crucial for effective financial planning and ensuring you're maximizing your take-home pay.

For 2025, several key changes to tax rates, contribution limits, and healthcare costs may affect your paycheck deductions. This guide breaks down the common deductions you'll see on your pay stub and explains how each impacts your take-home pay.

Mandatory Deductions

These deductions are required by law and cannot be avoided. They include various taxes and, in some cases, court-ordered payments.

1. Federal Income Tax Withholding

Federal income tax is withheld based on your W-4 form and your income level. For 2025, the federal tax brackets have been adjusted for inflation:

• 10% tax rate: Up to $11,600 for single filers; up to $23,200 for married filing jointly
• 12% tax rate: $11,601 to $47,150 for single filers; $23,201 to $94,300 for married filing jointly
• 22% tax rate: $47,151 to $100,525 for single filers; $94,301 to $201,050 for married filing jointly
• 24% tax rate: $100,526 to $191,950 for single filers; $201,051 to $383,900 for married filing jointly
• 32% tax rate: $191,951 to $243,725 for single filers; $383,901 to $487,450 for married filing jointly
• 35% tax rate: $243,726 to $609,350 for single filers; $487,451 to $731,200 for married filing jointly
• 37% tax rate: Over $609,350 for single filers; over $731,200 for married filing jointly

The standard deduction for 2025 is $14,600 for single filers and $29,200 for married couples filing jointly.

2. FICA Taxes (Social Security and Medicare)

FICA taxes fund Social Security and Medicare programs:

• Social Security tax (2025): 6.2% on the first $168,600 of wages (up from $160,200 in 2023)
• Medicare tax: 1.45% on all earnings, with an additional 0.9% on earnings above $200,000 for single filers ($250,000 for married filing jointly)

Unlike income tax, which uses a progressive rate structure, FICA taxes are flat percentages (up to the Social Security wage base limit).

3. State and Local Income Taxes

State income tax rates for 2025 vary widely depending on where you live:

• Nine states have no income tax: Alaska, Florida, Nevada, New Hampshire (on earned income), South Dakota, Tennessee, Texas, Washington, and Wyoming
• Flat tax states (like Illinois at 4.95% and Pennsylvania at 3.07%) apply the same rate to all income levels
• Progressive tax states (like California with rates up to 13.3% and New York up to 10.9%) have rates that increase with income
• Some cities and counties impose additional local income taxes

Check our State Income Tax Comparison article for a detailed breakdown by state.

4. Court-Ordered Deductions

These mandatory deductions may include:

• Child support: Payments withheld from your paycheck to support your children
• Wage garnishments: Court-ordered withholdings to pay debts, including tax levies, student loans, or creditor judgments
• Bankruptcy orders: Payments to satisfy bankruptcy proceedings

Federal law limits garnishments to 25% of disposable earnings or the amount by which weekly earnings exceed 30 times the federal minimum wage, whichever is less.

Pre-Tax Deductions

Pre-tax deductions are subtracted from your gross pay before taxes are calculated, reducing your taxable income and potentially lowering your tax burden. For 2025, these include:

1. Retirement Contributions

Contributions to qualified retirement plans reduce your taxable income. For 2025, contribution limits include:

• 401(k), 403(b), and most 457 plans: $23,000 annual contribution limit, with an additional $7,500 catch-up contribution for those 50 and older
• SIMPLE IRA plans: $16,000 annual contribution limit, with a $3,500 catch-up contribution
• Traditional IRA: While not typically a payroll deduction, contributions of up to $7,000 (plus $1,000 catch-up) may be tax-deductible depending on income and other factors

2. Health Insurance Premiums

Employer-sponsored health insurance premiums are typically paid with pre-tax dollars, reducing your taxable income. For 2025, the average annual premium for employer-sponsored health insurance is projected to be around $8,500 for single coverage and $23,000 for family coverage, with employees typically paying 20-30% of this cost.

3. Health Savings Account (HSA) Contributions

If you have a high-deductible health plan (HDHP), you can contribute to an HSA with pre-tax dollars. For 2025, contribution limits are:

• Self-only coverage: $4,150
• Family coverage: $8,300
• Catch-up contribution (age 55+): Additional $1,000

4. Flexible Spending Accounts (FSAs)

FSAs allow you to set aside pre-tax dollars for specific expenses. For 2025, contribution limits include:

• Healthcare FSA: $3,200 annual contribution limit
• Dependent Care FSA: $5,000 annual contribution limit for individuals or married couples filing jointly ($2,500 if married filing separately)

Remember that FSA funds typically must be used within the plan year or a grace period, or they may be forfeited ("use it or lose it" rule).

5. Commuter Benefits

Pre-tax deductions for qualified transportation expenses include:

• Transit passes and vanpooling: Up to $300 per month (2025 projected)
• Qualified parking: Up to $300 per month (2025 projected)

Post-Tax Deductions

Post-tax deductions are taken after taxes have been calculated and withheld. While they don't reduce your taxable income, they may offer other benefits:

1. Roth 401(k) or Roth IRA Contributions

Unlike traditional retirement accounts, Roth contributions are made with after-tax dollars. The benefit comes later, as qualified withdrawals in retirement are tax-free. For 2025, contribution limits are the same as traditional 401(k) plans ($23,000 plus $7,500 catch-up).

2. Disability Insurance

Some employers offer supplemental disability insurance as a voluntary benefit. Paying for this coverage with post-tax dollars means any benefits received would be tax-free.

3. Life Insurance

Employer-provided life insurance coverage over $50,000 may result in imputed income (taxable benefit). Additional voluntary life insurance is typically paid with after-tax dollars.

4. Union Dues

If you belong to a labor union, dues are typically deducted from your paycheck after taxes. For 2025, these are no longer tax-deductible for federal income tax purposes under current tax law.

Understanding Your Pay Stub

Your pay stub contains valuable information about your earnings and deductions. Key sections typically include:

• Gross earnings: Your total pay before any deductions
• Pre-tax deductions: Items like 401(k) contributions and health insurance premiums
• Taxes: Federal, state, local, Social Security, and Medicare withholdings
• Post-tax deductions: Roth contributions, supplemental insurance, etc.
• Net pay: The amount you actually receive after all deductions
• Year-to-date (YTD) totals: Cumulative amounts for the calendar year

Frequently Asked Questions About Paycheck Deductions

Conclusion

Understanding the deductions on your paycheck is essential for effective financial planning and ensuring you're maximizing your take-home pay. By knowing which deductions are mandatory, which offer tax advantages, and how they affect your net pay, you can make informed decisions about your benefits and tax withholding strategies.

For 2025, staying informed about tax bracket adjustments, contribution limit increases, and changes to healthcare costs will help you optimize your paycheck deductions. Use our PayrollCheck Calculator to see how different deduction scenarios affect your take-home pay and find the best balance for your financial goals.