You hired your first employee. Congratulations. Now you're staring at a gross pay figure, wondering what you're legally required to take out — and what requires the employee's say-so first. Get it wrong, and the IRS will let you know. Loudly.
Payroll deductions are amounts withheld from an employee's gross pay before the check is cut. Some are mandatory by federal or state law and apply automatically. Others are voluntary — elected by the employee and requiring their written sign-off before a single dollar can be withheld.
- Mandatory deductions come out automatically by law — no employee permission needed.
- Voluntary deductions require a signed written authorization from every employee before withholding.
- FICA alone is 7.65% of every paycheck — and you match it dollar for dollar.
- Net pay = gross minus pre-tax deductions, minus taxes, minus post-tax deductions. In that order.
- Missing a mandatory deduction exposes you to IRS penalties — not just a correction.
Mandatory Payroll Deductions: What You Must Withhold in 2026
These four categories are not optional. They apply to essentially every W-2 employee regardless of how many people you employ.
| Deduction | Rate / Rule | Your Obligation |
|---|---|---|
| FICA — Social Security | 6.2% up to the annual wage base | Withhold + match |
| FICA — Medicare | 1.45% (no wage cap); +0.9% on wages over $200K | Withhold + match base only |
| Federal Income Tax | Based on employee's W-4 + IRS Publication 15-T tables | Withhold only |
| State / Local Income Tax | Varies by state — nine states have no income tax | Withhold per state rules |
| Court-Ordered Garnishments | Child support, tax levies, creditor judgments | Comply or face personal liability |
The Social Security wage base adjusts annually — the IRS publishes the current ceiling each fall. Wages above that threshold stop generating Social Security withholding, but Medicare keeps going with no cap.
Garnishments deserve a special mention. When you receive an income withholding order, you have no discretion. Ignore it and you become personally liable for the amount you should have withheld. We see this trip up small employers more than almost anything else.
Voluntary Deductions: Employee-Elected, Employee-Authorized
Voluntary deductions are benefits or elections the employee chooses. The hard rule: you cannot withhold a single dollar for any voluntary deduction without a signed written authorization on file first. No verbal agreement counts. No email counts. Paper or DocuSign — something with a signature.
Common voluntary deductions at small businesses include 401(k) or SIMPLE IRA contributions, health insurance premiums (the employee's share), FSA and HSA contributions, life insurance premiums, and union dues where applicable.
Understanding pre-tax versus post-tax matters because it changes the order of operations when you calculate net pay.
- 401(k) / SIMPLE IRA
- Health insurance premiums
- HSA / FSA contributions
Reduce taxable wages before tax is calculated
- Roth 401(k) contributions
- Wage garnishments
- Life insurance (some plans)
Come out after all taxes are calculated
Gross to Net in 4 Steps — With a Real Example
Take Marcus, who runs a five-person landscaping crew in Ohio. His office manager earns $3,000 biweekly gross. Here's how the math flows, step by step.
$3,000 gross − $200 401(k) contribution = $2,800 taxable wages. This is the number you run taxes against — not the original gross.
7.65% × $2,800 = $214.20 withheld. You'll also owe a matching $214.20 from your own business funds — not from the employee's check.
This depends on the W-4. Using IRS Publication 15-T, let's say $280 for this example. Use the paycheck calculator to look up accurate withholding for any filing status.
$2,800 − $214.20 − $280 − any post-tax items = net pay. Run the full calculation in seconds with the gross-to-net paycheck calculator.
"Most payroll errors happen not from ignorance of the rates, but from applying them in the wrong order — taxing gross instead of adjusted gross, or forgetting the employer FICA match isn't the employee's problem."
Honest truth: for a business with 2-3 employees, running this manually every pay period is tedious and error-prone. One transposed digit in the FICA calculation, repeated across 26 pay periods, turns into a real problem come January when W-2s go out.
Mandatory deductions (FICA, federal and state income tax, garnishments) come out every pay period by law — no employee authorization required, no exceptions. Voluntary deductions require a signed authorization before you touch a dollar. Get the order of operations right: pre-tax deductions first, then taxes, then post-tax. And document every voluntary deduction authorization — it's your protection if there's ever a dispute.
Frequently Asked Questions
Can an employer deduct money from a paycheck without employee permission?
Only mandatory deductions — FICA, federal and state income tax, court-ordered garnishments — can be taken without separate employee consent. All voluntary deductions (401(k), health insurance, FSA) require a signed written authorization before any withholding begins. No authorization on file means no deduction, period.
What is the FICA tax rate for 2026?
The combined FICA rate is 7.65% for employees: 6.2% Social Security plus 1.45% Medicare, per IRS guidelines. Employers match that 7.65% separately — it does not come from the employee's check. The Social Security portion only applies up to the annually adjusted wage base; check IRS.gov each fall for the current year's figure.
What happens if I withhold too much from an employee's paycheck?
Over-withholding federal income tax is corrected when the employee files their return — they receive a refund from the IRS, not from you. Over-withholding FICA or taking unauthorized voluntary deductions is different: you may need to issue a corrected pay stub and repay the employee directly, which is both a compliance issue and an employee relations headache.
Managing deductions manually works fine when you have one or two employees and time to double-check every line. Once you're running biweekly payroll for four or five people across different states, the math compounds fast — and so do the consequences of getting it wrong.
Skip the math — PayHRoll handles every deduction automatically.
FICA, federal withholding, state taxes, pre-tax deductions — calculated correctly on every paycheck.
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