Question

For the employee, net pay is equal to gross earnings minus:

Multiple Choice
A. only Federal income tax withholdings.
B. payroll deductions.
C. only Social Security withholdings.
D. only medical insurance premiums.

Answer 1

Net pay is the amount an employee receives after subtracting all payroll deductions, not just medical insurance premiums, from gross earnings. This includes taxes, Social Security and Medicare contributions, retirement plans, and various insurances.

Step-by-step explanation:

For an employee, net pay is the amount received after subtracting payroll deductions from gross earnings. These deductions typically include taxes, such as federal and state income tax, and Social Security and Medicare contributions, which are 6.2% and 1.45% of the gross pay respectively. In addition to these, deductions can also be made for retirement plans, health insurance premiums, unemployment, and worker's compensation insurance.

It is important to note that the employer also pays a portion of the payroll taxes, but this may impact the employee indirectly through potentially lower wages. Payroll deductions are essential for covering an employee's income tax, social security system, insurance programs, and other benefits like Medicare. Contrary to option D, net pay is not calculated by only deducting medical insurance premiums; it includes all mandatory and voluntary deductions outlined.