 In this presentation we will take a look at deductions from gross pay. When considering deductions from gross pay we may first want to look at what is gross pay. Gross pay is going to be before we have the deductions. So gross pay is going to be what our payroll would be if we did not have deductions including things like taxes. So we're getting from gross pay in other words to the end result which would be the net pay and deductions then are going to include things like mandatory deductions which are federal and state income taxes, deductions by law, deductions we have to have. So remember that the business is in essence required to make these types of deductions. It's important to note that the federal income taxes we're talking about here that are coming out of gross pay are the responsibility of the employee. In other words they're the employee's taxes. Now the employer is responsible and required to take them out by law but they are these taxes related to the employee. And again that concept is a little bit confusing because who has to pay the taxes? The employer is the one that's actually going to write the check but the money theoretically is coming from the employee it's coming out of their paycheck. So we're taking this money out of the employee paycheck by law because we're required to do so as the employer and then we're paying it to the state or the fed the government on behalf of the employee. Then we have the social security and Medicare same type of idea here these are both federal income or this is a federal income tax and federal income tax social security and Medicare federal income tax and we are once again taking that out where we're required to. It's not a payroll tax that is necessarily in this context for the employer it's being paid by the employee. Now we'll talk more about who pays which taxes the social security and Medicare is going to have an employee component and an employer component but when we look at our pay step when we look at what's been pulled out of our pay step that's of course what we theoretically paid it came out of our taxes. The reason I say theoretically is because we could debate in terms of you know what's the employer actually going to do what happens to the market when we when we impose taxes what happens to whatever the negotiation will be for pay in terms of the negotiation. So from an economic perspective you can kind of have a question as to you know who's really paying the tax based on what happens in terms of markets but what happens in terms of the actual pay check calculation is that we have gross pay this is going to be social security and Medicare that's being taken out of gross pay for our check and then the business will have to pay their portion their portion of social security and Medicare is something that we don't see on the pay step it's not coming out of our check that's an added piece that is actually payroll taxes to the employer this piece these things that are being deducted aren't really payroll taxes to the employer they're just part of wages they're part of what the employee has earned and therefore the employer all the employer is doing is just taking it out and paying some of our bills for us and that's what's really happening here the payroll taxes to the employer will be the employer portion of social security and Medicare and some other things like futa federal unemployment tax so then we have the voluntary deductions when we get from gross pay and we're working our way down to net pay and those are going to be things like retirement plans and note that these are good these are good things these are voluntary deductions so note they're similar because when we talk about federal income tax and social security those are really the responsibility of the employee theoretically we have to pay them as you know good citizens we're supposed to pay our taxes and the and we can think of the business has kind of doing us a favor by taking them out of our paycheck directly so that they make the payment for us it makes our lives easier but of course these are mandated to do so and the main reason they are mandated is because the IRS trusts and has more leverage over a company to force them to to comply than they do over individuals so therefore these are mandated now voluntary it's the same kind of idea if we have a retirement plan well the the company is providing that retirement plan in some way and they're giving us the option to participate in it and the option then to take the money directly out of our paycheck and put it into the retirement plan and that's typically a good thing so that's going to be a good option same kind of concept however that we're still just taking money out that belongs to the employee in pain it to some other area in this case a retirement plan for the employee's retirement cafeteria plans usually some type of insurance plans are another type of benefit typically that can be offered huge benefits and note that if you're working somewhere deductions that are mandatory don't tell you a whole lot about the culture of the employer but if they're giving the voluntary deductions then those are things that do because those are going to be things that the company is deciding to provide as part of their benefit package and so those are the things that are really differentiating one company from another company so other types of insurance voluntary deductions could be included as well so section 125 plans section 125 being a section of the internal revenue service code the irs code and under the section 125 plan we typically have plans dealing with medical expenses so they're typically going to be benefits related to medical expenses so pre-tax deductions health care is typically what will be covered under the 125 plans and of course the goal here is going to be to incentivize and hopefully make the the medical plans or health care more affordable for employees