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In this lecture, payroll deduction is defined according to fundamental accounting principles. Payroll deductions are amounts withheld from an employee's gross pay, also known as withholdings. Common deductions include federal income tax and FICA taxes, which cover Social Security and Medicare. Additionally, deductions may be made for benefits such as retirement and insurance plans. The process begins with an employee's gross pay, from which these deductions are subtracted, resulting in the net pay the employee receives. The main focus is on federal taxes, particularly FICA and federal income tax from the employee's wage.