How is taxable pay calculated?

The calculation of taxable pay involves determining the total earnings that are subject to taxation. The correct approach is to start with gross pay, which includes all compensation received by an employee before any deductions. This figure needs to account for any taxable benefits that the employee may receive, as these benefits are also subject to taxation.

From there, allowable deductions, such as pension contributions or certain expenses, are subtracted from this sum. This deduction process is crucial as it reflects the amount that the tax authorities will assess for taxation. Consequently, the formula of gross pay plus taxable benefits minus allowable deductions accurately represents the total taxable pay.

The other options do not capture the required elements for calculating taxable pay effectively. For example, net pay is typically what an employee takes home after all deductions have been made, which does not inform the taxable figure. The third option considers gross pay but doesn't account for the addition of taxable benefits or the subtraction of allowable deductions, making it incomplete. Lastly, focusing solely on monthly salary adjusted for overtime and deductions does not encompass the broader aspects of taxable benefits and all deductions that factor into the calculation of taxable pay.