What we'll cover
- Viewing existing payroll deductions
- Creating new deductions
- Deduction types available in OnPay
- Adding deductions to employees
What are payroll deductions?
Payroll Deductions are anything that is taken from an employee's pay, whether it be pre or post-tax, other than payroll taxes themselves. OnPay offers pre-built, customizable deductions that you can add to your account. Depending on the type of deduction you choose to add, you will be given the ability to customize that deduction exactly how you need to.
Viewing existing payroll deductions
Go to Company, then Worker Deductions.
Existing deductions are listed on the left, under "Payroll Deductions".
Creating new deductions
Create new deductions with custom names by clicking +Add. Once you create a new payroll deduction, you will need to assign it to each employee that will utilize that deduction. We'll cover this later.
Give this deduction a name that is simple and easy to understand. After you choose a deduction type from the list, you'll see any available options for the selected type.
Click Create when you're ready.
You should now see your new payroll deduction in the list on the left.
Deduction types available in OnPay
When adding a new payroll deduction, the options found under "Select Type" allow for you to associate your payroll deduction with a deduction recognized by your local and federal tax offices.
Common deduction types:
- Standard deduction - An after-tax deduction.
- 401(k) Retirement - Pre-taxed Retirement deduction, reduces federal and state taxable wages by the amount of contribution.
- 403(b) Retirement - Retirement account for certain employees of Public Schools & tax exempt organizations or not-for-profit organizations. This is a pre-taxed Retirement deduction reduces federal and state taxable wages by the amount of contribution.
- 457 Retirement - Pre-taxed Retirement deduction, reduces federal and state taxable wages by the amount of contribution. Offered by state & local government & some nonprofits.
- Roth 401(k) Retirement - Post-taxed Retirement deduction.
- Roth 403(b) Retirement - Post-taxed Retirement deduction.
- FSA - Pre-taxed Flexible Spending Account deduction, commonly used for medical expenses.
- HSA Health Savings - Pre-taxed deduction, funds roll over and accumulate year to year if not spent.
- Simple IRA Retirement - Taxed Retirement deduction, reduces federal and state taxable wages by the amount of contribution.
- Roth 457 Retirement - Retirement plan that some state, local government, and nonprofit employers provide for their workers.
- Dependent Care FSA - A pre-tax benefit account used to pay for eligible dependent care services, such as child or adult daycare, preschool, before-school and after-school programs, or summer day camp.
- Union Dues - A flat amount deducted from each check to pay dues owed by Union members.
- Union Dues by Hours - A flexible amount deducted from each check based on hours worked.
- Section 125 - Pre-taxed deduction that reduces taxable income.
- Section 132 -Pre-taxed deduction for transportation reimbursement costs.
Special Cases: Roth IRAs and State-Mandated Retirement Plans
What is a Roth IRA?
A Roth IRA is an Individual Retirement Account that, much like a Roth 401(k), is funded with after-tax dollars and enjoys tax-free growth and withdrawals. These accounts can be established individually, or, due to recent state-mandated retirement funds, by the employer, if they are required to so do in their state.
How is a Roth IRA different than a traditional Roth 401(k)?
Beginning in 2023, individuals with a Roth IRA can contribute up to $6,500 per year (up from $6,000), as well as an additional $1000 per year if they are over 50. The contributions are funded with after-tax dollars and there is no company match.
A normal Roth 401k is through a company that has a plan administrator. The deductions are also after-tax contributions but the maximum contribution limit is higher. For 2023, the limit is $22,500, with a $1,000 catch-up contribution limit for participants age 50 or older. The catchup limit applies from the start of the year to those turning 50 at any time during the year.
How are these funded?
The amounts are deducted from employee pay as normal, but it is up to the client to fund the accounts through the state-mandated website or the individual’s personal retirement company.
Why is this important?
Most state-mandated retirement plans are Roth IRAs. As more and more states pass legislation to create these plans each year, Roth IRA deductions will become increasingly common across the country.
Roth IRA Setup Guidelines
Roth IRA deductions can be set up and added to employees in OnPay just like any other deduction, using the instructions found both above and below. We do recommend the following settings, however:
- When setting up the "Roth IRA" deduction at the company level, use the "Standard Deduction (Post Tax)" deduction type.
- When adding the deduction to an employee, be sure to enter $6,500 in the "Annual Limit" field (or $7,500 for anyone over 50 years old).
Adding deductions to employees
All deductions are available for use for all employees once they are created. However, you have complete control over who has which deductions, as well as some employee-specific customizations that you may need to do.
Choose an employee from the "Employees" list.
Click Job, then Deductions.
Your new payroll deduction will be available when you press the blue (+) button.