What are we paying for?

Most of us understand what we pay for. Things like rent, phone, and utilities.

But when it comes to tax deductions on paychecks, many of us have no clue.

To put it mildly, calculating payroll taxes is complicated in the US, and has been for many years.

We already know deductions are based on a combination of things, for example where you work, what you do, how much you make, what you claim on your W-4, and more.

But how do those numbers get calculated exactly?

You could pull out tax tables to see how the amounts happen, but more than likely you are using payroll software that handles this for you.

So, what do you do if an employee asks?

One suggestion is to explain the various deductions shown as acronyms on their pay stub... and why they are collected. Things like FICA, Social Security, and Medicare. Explain the difference between gross pay and net pay. Explain it is possible to be eligible for a refund in April. And explain how you as the employer pay payroll taxes too.

We can't change the US Payroll Tax system, but we are in a sense obligated to explain it to our employees.

They may or may not like it, but at least they will know what they are paying for.