- Verify that the gross salary minus the sum of tax deductions equals the net pay: \(\$1106.45 - (122.67 + 68.60 + 16.04 + 10.33) = \$888.81\).
- Recognize that since these amounts are subtracted from the gross salary, they represent deductions.
- Identify that 'withholding' is the standard financial term for taxes taken out of an employee's gross earnings.
- Choose option 'a' as the correct description.
- Final Answer: \(\boxed{a}\)
Explanation
- Analyzing the Paycheck Components
To understand how federal and state taxes appear on a paycheck, we first look at the relationship between the gross salary and the net pay. The gross salary is the total amount earned before any deductions, which is \(1106.45\). The various taxes listed—Federal Income Tax (\(122.67\)), Social Security Tax (\(68.60\)), Medicare Tax (\(16.04\)), and State Income Tax (\(10.33\))—are components that affect the final amount the employee receives, known as the net pay. By summing these deductions:
\[122.67 + 68.60 + 16.04 + 10.33 = 217.64\]
Subtracting this total from the gross salary gives us:
\[1106.45 - 217.64 = 888.81\]
This matches the stated net pay on the paycheck stub.
- Interpreting Tax Deductions
Because the sum of the taxes and other deductions is subtracted from the gross salary to arrive at the final take-home (net) pay, we can conclude that these tax amounts represent money that is taken out of the employee's gross earnings before the payment is issued. In the context of payroll and accounting, money that is deducted from an employee's earnings for taxes is officially referred to as 'withholding'. Employers are legally required to withhold these amounts and pay them directly to the appropriate government authorities on behalf of the employee. Therefore, the statement that these taxes are 'withheld from employee pay' is correct.
- Evaluating Options and Concluding
Comparing our findings with the given options:
AWithheld from employee pay: This aligns with our analysis of deductions.
BRefunded in employee pay: This is incorrect, as these are payments made to the government, not returned to the employee.
CAdded to employee pay: This is incorrect, as this would increase the salary, whereas the net pay is lower than the gross.
DFiled through employee pay: While taxes are filed, the term 'withheld' more accurately describes the mechanism shown on the pay stub.
Consequently, the correct option is 'a'.
Examples
When you eventually start your first job, understanding your pay stub is crucial for managing your personal finances. For instance, if you earn a gross salary of \(\$2,000\) per month, you might see \(\$300\) being withheld for federal and state taxes. Seeing this deduction on your pay stub reminds you that your actual 'take-home' pay is different from your gross salary. This knowledge helps you budget more effectively by focusing on your net income rather than just your gross earnings.