Final answer:
Net pay is the amount an employee receives after subtracting payroll deductions such as Social Security (6.2%), Medicare (1.45%), and federal and state taxes (typically around 15%) from their gross pay. These deductions are mandatory, and for independent contractors, the full amounts for both employee and employer contributions to Social Security and Medicare must be paid.
Step-by-step explanation:
Net pay is calculated by subtracting all the mandatory payroll deductions from the employee's gross pay. These deductions include federal and state taxes, Social Security, and Medicare. The Social Security tax is 6.2% of the gross pay, and Medicare is 1.45%, with an additional percentage for federal and state taxes typically around 15%, depending on the state and other factors.
An employee's net pay is the amount they actually receive in their paycheck after these deductions are made. It is their take-home pay. If you are an independent contractor receiving a 1099 tax statement, you are responsible for paying both the employee and employer portions of these taxes, which means paying the full 12.4% for Social Security and 2.9% for Medicare.