Deduction refers to the process of subtracting or withholding a specific amount of an employee's wages or benefits for various purposes, such as taxes, insurance premiums, or retirement contributions.

Example
An employee's monthly salary of $4,000 is subject to deductions, including $500 for federal income tax, $100 for health insurance premiums, and $200 for a 401(k) retirement plan contribution. After these deductions, the employee's net pay is $3,200. Deductions play a crucial role in ensuring compliance with legal requirements and facilitating employee benefits.