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In this lecture, payroll deduction is defined as amounts withheld from an employee's gross pay, also known as withholdings. Key elements include payroll taxes such as federal income tax and FICA taxes, which cover Social Security and Medicare. Deductions may also include contributions to benefits like retirement and insurance plans. The process involves taking an employee’s gross pay, from which various deductions are subtracted, resulting in the net amount the employee actually receives. The main components of payroll deductions are highlighted, focusing on federal taxes like FICA and federal income tax affecting the employee's wages.