5How does the payroll process handle tax exemptions for deferred compensation plans?

In most cases, pretax deferred wages aren't subject to federal (FIT) or state income tax (SIT) withholding at the time of deferral. However, they're included as wages subject to Social Security, Medicare, and federal unemployment tax (FUTA).

The payroll process takes this into account and automatically deducts the appropriate taxes during payroll calculation.