Differentiate between and provide examples of voluntary versus involuntary payroll deductions.  Why are deductions from employees' earnings classified as liabilities for the employer?  What is the advantage to the employee for certain voluntary payroll deductions?  Explain the impact on present net income or "take home pay" by participating in an employer-sponsored defined contribution plan.  What are the pros and cons of this impact?

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Answer Voluntary versus Involuntary Payroll Deductions Voluntary Deductions These are deductions from an employees paycheck that the employee has elected to have withheld Examples include contributions to retirement plans eg 401k health insurance premiums charitable donations and flexible spending accounts FSAs Involuntary Deductions These are deductions that employers are required by law to withhold from an employees paycheck Examples include federal and state income taxes FICA Social Security and Medicare taxes garnishments for child support or tax liens and courtordered deductions Classification of Deductions as Liabilities for the Employer Deductions from employees earnings are classified as liabilities for the employer because the employer has a legal obligation to remit these funds to the appropriate third parties Even though the money is deducted from the employees paycheck it is held by the employer until it is paid to the designated recipients Until these funds are remitted they represent a liability on the employers balance sheet Advantage of Voluntary Payroll Deductions for Employees The advantage of voluntary payroll deductions for employees is that they allow employees to customize their compensation package to better suit their individual needs and preferences For example contributing to a retirement plan allows employees to save for their future while participating in health insurance plans provides access to medical benefits and coverage for healthcare expenses Additionally contributions to flexible spending accounts can help employees set aside pretax dollars for eligible expenses such as medical costs or dependent care Impact on Present Net Income Take Home Pay by Participating in an EmployerSponsored Defined Contribution ... View the full answer