Payroll deductions are either statutory (involuntary) or voluntary. Statutory deductions are mandatory, such as payroll taxes and wage garnishments. Voluntary deductions are those the employee elects, such as loan deductions, and medical, dental, life and disability insurance. The process for stopping deductions depends on the type of deduction and the policies surrounding it.
Keep in mind that you typically cannot stop certain tax deductions. The law requires employees to pay federal income tax, state income tax (if applicable), and Medicare and Social Security (FICA) taxes. Generally, you cannot stop FICA deductions. However, if you qualify for exempt status, you can stop your federal and state income tax withholding.
For 2010, federal income tax exemption conditions are: you were refunded of all your federal income tax last year because you had no tax liability, and you anticipate a refund this year for all your federal income tax. State income tax laws vary by state; therefore, check with your local department of labor agency (see Resources) for exemption qualifications.
To stop federal income tax deductions, complete a new form W-4 and submit to your employer. To stop state income tax withholding, follow your state’s procedures. For instance, if your state is New York, complete Form IT-2104-E, Certificate of Exemption from Withholding and submit to your employer.
Allow wage garnishments and child support to run their course. These are statutory deductions that cannot stop unless the courts or issuing institution orders the employer to do so. If you do not agree with the garnishment, file an appeal/answer with the issuing institution; instructions on how to do this should be included in the garnishment paperwork.
If you win the appeal, your employer cannot stop the deduction until it receives notification from the issuing institution. In this case, ask the issuing institution to promptly forward the necessary paperwork to your employer so the deduction can be stopped.
Give your employer written consent to stop voluntary deductions. For instance, notify your employer in writing if you do not want to participate in the company-sponsored 401k plan anymore. Some employers have standardized forms to stop voluntary deductions; others accept email notification or handwritten or typed hard-copy notification.
Early withdrawal (prior to age 59 1/2) of funds from a company-sponsored retirement plan can result in an early-withdrawal penalty of 10 percent additional tax from the IRS. Furthermore, employers typically require that you wait until open enrollment to stop your company-sponsored health benefits.
- Early withdrawal (prior to age 59 1/2) of funds from a company-sponsored retirement plan can result in an early-withdrawal penalty of 10 percent additional tax from the IRS. Furthermore, employers typically require that you wait until open enrollment to stop your company-sponsored health benefits.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.