Common Paycheck Deductions Vocabulary

FICA

Federal payroll tax is split between the employer and employee to help fund Social Security and Medicare programs.

401K

Employer-sponsored retirement account in which employees can contribute a percentage of their income. Employers x often offer to match at least some of these contributions.

Payroll Tax

Tax the government imposed on employers bans employees to generally fund three specific programs: Social Security, Medicare, and unemployment benefits.

Income Tax

General classification of tax imposed on individuals’ salaries, wages, and other incomes by federal, state and local governments to fund services.

State Income Tax

3.07% of income in PA to fund our PA parks, roads, education, etc.

Local Income Tax

An assessment by municipality to fund public services ranging from schools and highways to garbage collection and sewer maintenance.

Federal Income Tax

A progressive system of income taxation to fund health insurance programs, nationals defense, national parks, interest payments on national debt, etc.

Optional Deductions

Voluntary withholdings from an employee s paycheck that they can choose to have made. They are not required by law and can be opted out of by the employee.

Mandatory Deductions

Employers are legally allowed to make these from every paycheck regardless of employee consent. Examples include federal and state taxes, Social Security contributions, and in some cases, wage garnishments and union dues.

Social Security

A federal payroll tax for Old-Age, Survivors, and Disability Insurance(OASDI) programs. Most commonly known as supplemental government-sponsored retirement plan.

Medicare

A federal government health insurance program for people ages 65 and older.

Occupational Tax

A flat tax on employees for pro ledge to work in a specific county.

Unemployment Tax

A tax that is imposed by the government on employers and employee to find benefits for workers who gave lost their jobs.

Progressive Taxation

A tax rate that increases as taxable income increased. It imposes a lower tax rate on low-income earners and a higher rate on those with higher incomes. This is usually achieved by creating tax brackets that group tax players by income range.

Flat Tax

A single percentage income tax rate applied to all taxpayers regardless of income m. Often referred to as a proportional tax.