What are payroll deductions?

• A. They increase gross pay
• B. They reduce gross pay and determine take-home pay
• C. They are optional and have no effect on benefits
• D. They apply only to salaried employees

Answer: (B)

Payroll deductions are amounts subtracted from gross pay to cover taxes, benefits, and other withholdings. This lowers what you actually take home, known as take-home pay. Gross pay is the total earnings before deductions, while take-home pay is what remains after those deductions are applied. Deductions can be mandatory (federal and state taxes, Social Security, Medicare) or voluntary (health insurance premiums, retirement contributions, flexible spending accounts). They affect the final amount you receive each pay period, not the gross amount earned, and they apply to both hourly and salaried employees.