Contractor License Exam 2025 – 400 Free Practice Questions to Pass the Exam

To determine net pay, the calculation involves starting with the gross pay and then subtracting any taxes withheld and other deductions. Gross pay refers to the total earnings before any deductions, including wages, salaries, and any additional compensation. Taxes withheld may include federal, state, and local taxes, as well as contributions to Social Security and Medicare. Deductions can include retirement contributions, health premiums, and other benefits that reduce the employee's total take-home pay.

By subtracting both taxes withheld and deductions from gross pay, you arrive at net pay, which represents the actual amount an employee takes home after all withholdings. This is a critical calculation for employees to understand as it affects their budgeting and overall financial planning. Other options do not accurately reflect the correct method to calculate net pay, either including amounts that would not contribute to net pay or not subtracting necessary deductions.