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In this lecture, payroll deduction is defined according to fundamental accounting principles, specifically referencing the 22nd edition of a relevant text. 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 encompass Social Security and Medicare. Additional deductions may also arise from employee benefits, like retirement or insurance plans. The process involves starting with the employee's gross pay, from which various federal taxes, including FICA and federal income tax, are deducted, leading to the net pay the employee ultimately receives.