Which accounts are deducted from an employee's earnings?

Which accounts are deducted from an employee's earnings?

• A. FICA (Medicare and Social Security), income taxes, federal taxes, health insurance
• B. FICA (Medicare and Social Security), state taxes, local taxes, health insurance
• C. Federal taxes, state taxes, payroll fees, workers' compensation
• D. Net pay allowances, employee loans, tips, health insurance

Answer: (A)

Deductions from earnings are the amounts taken out of an employee’s gross pay to cover taxes and benefits, resulting in net pay. The items shown in the correct choice represent the standard categories that reduce gross earnings: FICA taxes for Social Security and Medicare are mandatory withholdings; federal income tax withholding reduces pay to cover the employee’s federal tax liability; and health insurance is a common voluntary deduction that comes out of earnings to pay for coverage. Together these withholdings come out before the employee receives pay. Other items listed aren’t typical deductions from earnings in the same way. For example, some items are employer costs rather than withholdings from wages, and others aren’t standard payroll deductions. The key idea is that deductions are amounts withheld to satisfy tax obligations or pay for benefits, leaving net pay.

Deductions from earnings are the amounts taken out of an employee’s gross pay to cover taxes and benefits, resulting in net pay. The items shown in the correct choice represent the standard categories that reduce gross earnings: FICA taxes for Social Security and Medicare are mandatory withholdings; federal income tax withholding reduces pay to cover the employee’s federal tax liability; and health insurance is a common voluntary deduction that comes out of earnings to pay for coverage. Together these withholdings come out before the employee receives pay.

Other items listed aren’t typical deductions from earnings in the same way. For example, some items are employer costs rather than withholdings from wages, and others aren’t standard payroll deductions. The key idea is that deductions are amounts withheld to satisfy tax obligations or pay for benefits, leaving net pay.