Every Paycheck Deduction Explained
What each line on your paycheck stub means — and whether it actually helps you.
By Reba Donaldson · Last reviewed: April 2026
The three categories of deductions
Every paycheck deduction falls into one of three categories:
- Pre-tax deductions — taken out before federal income tax is calculated. Reduce your taxable income.
- Taxes — federal, state, local income tax plus FICA (Social Security and Medicare).
- After-tax deductions — taken out after taxes are calculated. Don't reduce your tax bill.
The order matters: pre-tax deductions reduce the amount that gets taxed, which is why they save you money on taxes. After-tax deductions don't.
Pre-tax deductions
Traditional 401(k)WORKS FOR YOU
Reduces taxable income. Contributions grow tax-deferred until retirement. 2025 limit: $23,500 ($31,000 if 50+).
Traditional Health Insurance PremiumsWORKS FOR YOU
Reduces taxable income. Most employer-sponsored health plans qualify under Section 125.
HSA ContributionsWORKS FOR YOU
Triple tax advantage: pre-tax going in, tax-free growth, tax-free withdrawals for medical expenses. 2025 limit: $4,300 individual, $8,550 family.
FSA (Flexible Spending Account)WORKS FOR YOU
Pre-tax money for medical or dependent care expenses. Use-it-or-lose-it within the plan year. 2025 medical FSA limit: $3,200.
Dependent Care FSAWORKS FOR YOU
Pre-tax money for childcare or dependent care expenses. 2025 limit: $5,000 per household.
Commuter BenefitsWORKS FOR YOU
Pre-tax money for transit passes or qualified parking. 2025 limit: $315/month each.
Tax deductions
Federal Income Tax
Withheld based on your W-4. Reconciled on your tax return. Goes to the IRS.
Social Security Tax
6.2% of wages up to the wage base ($168,600 in 2024 / $176,100 in 2026). Funds Social Security retirement benefits.
Medicare Tax
1.45% of all wages, no cap. Plus 0.9% additional on wages over $200,000. Funds Medicare healthcare for retirees.
State Income Tax
Varies by state. 0% in 9 states (FL, TX, NV, WA, AK, SD, WY, TN, NH on wages). Up to 13.3% in CA.
Local Income Tax
Some cities and counties have their own income tax — NYC, Philadelphia, San Francisco, certain Ohio cities, etc.
After-tax deductions
Roth 401(k)WORKS FOR YOU
Like traditional 401(k) but funded with after-tax money. Withdrawals in retirement are tax-free. Same $23,500 contribution limit.
Life Insurance Premiums
Term, whole, or universal life insurance through your employer. Some employer-paid coverage may have tax implications.
Disability InsuranceWORKS FOR YOU
Short-term and long-term disability insurance premiums. If you pay with after-tax money, benefits are tax-free if you ever need them.
Union Dues
Required if you work in a union shop. May be partially tax-deductible in some states.
Wage Garnishments
Court-ordered deductions for child support, debt collection, tax liens, or student loans in default. Limited by federal/state law.
Two questions to ask about every deduction
1. Is this deduction reducing my tax bill? Pre-tax deductions reduce your taxable income, lowering your federal (and usually state) income tax. After-tax deductions don't.
2. Is this deduction working for me long-term? Retirement contributions build wealth. HSA contributions build a tax-advantaged medical fund. Health insurance protects you from catastrophic costs. These are deductions worth maximizing. Wage garnishments and required dues aren't choices, but they're not building anything for you either.