Step 2
Now let's remove a portion to simulate that it is a clear glass style button.
Selections > Modify > Contract... > Number of pixels: 8 > Okay.

It's a bit tricky here, but we're going to cut a small groove out of it to add to the appearance.
On the Tools toolbar, select the Selection (S) and on the Tool Options palette, Selection type: Rounded Rectangle
While holding down the Ctrl key on your keyboard, place your mouse about 1/3 down from the top of the selection and just on the inside of it and remove the upper half. The idea here is to leave a rounded cut out:


On the Tools toolbar, select the Move Tool (M)
When your dealing with Raster layers, as long as the Move Tool (M) is selected we can use the arrow keys on our keyboard to move our image in all four directions; up/down and left/right.
On your keyboard hit the UP arrow key 4 times:

Now, hit Delete on your keyboard:

Let's place it back where it originally was. Hit the Down arrow key on your keyboard 4 times.
Selections > Load/Save Selection > Load Selection From Alpha Channel... > Load.
Selections > Modify > Contract... > Number of pixels: 1 > Ok.
Adjust > Blur > Gaussian Blur > Radius: 4 > OK.
Selections > Modify > Expand... > Number of pixels: 1 > Ok.
Effects > 3D Effects > Drop Shadow... I'm using the following settings:


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