Voluntary payroll deductions are amounts subtracted from an employee's gross wage to cover the cost of employee paid benefits offered by the employer.

For deductions such as retirement plans, health insurance, HSA plans, or FSA, your provider can help you decide on the amount to be withheld and determine the taxability.

Deduction vs. Contribution.

A deduction is an amount paid by an employee and deducted from each paycheck. A contribution is paid by the employer and often counts as additional pay or wages.

For example: An employee and an employer might pay some part of the cost for a health insurance plan. The employee-paid portion is called a deduction. The portion paid by the employer is called a contribution.

Learn about the types of voluntary deductions

Voluntary payroll deductions include medical, dental, and vision insurance premiums (both pretax and post-tax).  Garnishments are not voluntary deductions.

The chart below explains which deductions are supported in Online Payroll.

For the taxability of each deductions, see Supported pay types and deductions explained for more details.

Category Types
Health Insurance Medical, Dental, or Vision Insurance
Retirement Plans 401(k), SIMPLE 401(k), 403(b) , SARSEP, SIMPLE IRA, Company-only plan, Roth 401(k), Roth 403(b), and catch-ups
FSA Plans Dependent Care FSA** and Medical Expense FSA
HSA Plans Taxable HSA and Pretax HSA
Other Deductions Cash Advance Repayment, Loan Repayment, other after-tax deduction

Note: We don't support the Dependent Care FSA in Pennsylvania.

Set up a deduction item to employees

Set up a deduction for your employees. Once a deduction is set up to either one of your employees, this deduction item appears as an option to select when adding a deduction to the rest of your employees.

To add a deduction:

Assign a deduction item to employees

You can add the same deduction you've set up to an employee to the other employees by simply assigning it to them.

To assign a deduction:

Understanding deduction guidelines

Retirement plan deductions and contributions

There are retirement plan contributions that are tax-deferred. This means that the employees' wages are reduced by the amount of the contribution before certain taxes are calculated.

See Retirement plan deductions and contributions for more details.

Cafeteria plans (Section 125 plans) and flexible spending accounts

If you have a cafeteria plan (also known as a Section 125 plan), your employees can pay medical, dental, and vision insurance premiums with pretax paycheck deductions.

See Section 125 cafeteria plans for more details.

Health Savings Account contributions and limits

An employee is eligible to set up a health savings account (HSA) if they satisfy all federal requirements, such as participating in a high-deductible health plan (HDHP). Both you and the employee can contribute to their HSA.

See Set up Health Savings Account (HSA) plans for more details.