"Demystifying Paycheck Deductions in Simple Terms"

Understanding mandatory deductions like Social Security, Medicare, and federal tax withholding is essential, as they fund retirement, healthcare, and income tax obligations through employee and employer contributions.

Understanding mandatory deductions is crucial for employees and employers. Below is an explanation of the three most common deductions: Social Security, Medicare, and federal tax withholding.
Deduction Description
Social Security Social Security is a federal program that provides retirement, disability, and survivor benefits. Employees contribute 6.2% of their wages, and employers match the same percentage. The contribution is capped at a maximum wage base that is subject to change annually.
Medicare Medicare is a federal health insurance program for individuals aged 65 and older, as well as certain younger individuals with disabilities. Employees contribute 1.45% of their wages, and employers match the same percentage. Unlike Social Security, there is no maximum wage limit for Medicare deductions. An additional 0.9% may apply for high-income earners.
Federal Tax Withholding Federal tax withholding is the amount of federal income tax deducted from an employee's paycheck. The amount is determined based on the employee's earnings, filing status, and the number of allowances claimed on their W-4 form. These funds are used to cover the employee's annual income tax liability.


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