What Are Deduction Codes?

What are deduction codes?

Deduction codes are specific codes provided by your payroll provider that employers use to identify withheld wages on pay stubs. Employers set the codes up, which are then assigned to employees.

Why do we need deduction codes?

The main use for deduction codes is to make sure certain wages get withheld from an employee's paycheck. Common deduction codes are used for payment of Medical and Dental benefits and the contributions that employees wish to make to their 401(k) plan, in addition to other employee benefits. 

Different types of withholdings for contributions to your 401(k) plan

There are two different types of withholdings that you may be able to make to your retirement plan.

• Pre-Tax
• Roth 

Setting up your employees’ contributions to the plan with your payroll provider. You must confirm with your payroll company how to set up deduction codes in your payroll system for employees’ pre-tax, Roth, and other types of retirement plan contributions.

Retirement fund codes can vary by payroll provider and may depend on the plan's features. It is your responsibility to set up and maintain these deduction codes in your payroll system so that the proper deductions can be made.

Retirement Loans

Your plan may allow employees the ability to borrow against their 401(k) account for certain types of expenses approved by the Internal Revenue Service. Employees must pay back their loan through deductions from their paycheck. Please check with your payroll provider, as they may have a specific deduction code for a 401(k) plan loan repayment.