Working payroll means comprehending a laundry list of terms. Below is a list of some of the more basic payroll terms.
– Retirement plan sponsored by an employer, allowing employees to save and invest a portion of their paycheck pre-tax.
Adjusted Gross Income – AGI is an employee’s gross income minus specific deductions.
Allowances/Exemptions – Allowances or exemptions are marked on an employee’s W-4 and reduce their taxable income. These are based on statuses or circumstances, like marriage or children.
Annual Wage/Annualizing Wages- An annual wage is the total amount an employee will be paid in wages during a calendar year. Employers can annualize wage payments for withholding purposes. View the arithmetic here.
Back Pay- Payment for work done in the past that was withheld.
Base Pay- The amount of pay for a job, minus bonuses or overtime.
Benefits- Non-wage compensation offered to employees by their company such as health, dental, vacation, daycare, tuition and others.
Bonus Wages- Money given to an employee outside of his or her regular salary or wages.
– A fee paid to an employee for performing a service or selling a product.
Deduction- A reduction of income that can be taxed. Generally the result of expenses over a calendar year.
Dependent- A person that a taxpayer (other than his or her spouse) who can be used to claim exemption. Children are a prime example.
Disposable Income- Personal income minus personal taxes.
Earned Income Credit- The EIC is a tax credit for certain people who’ve earned income under $53,267.
Employer Identification Number- A nine-digit number that identifies a business entity.
Exempt- Refers to the monetary exemption of an employee that reduces his or her taxable income.
Fair Labor Standards Act- The FLSA establishes employment standards for private and government sectors, including minimum wage, overtime pay and recordkeeping.
Family and Medical Leave Act- The FMLA is a federal law that requires employers to provide job protection and unpaid leave to employees with qualifying medical or family reasons.
Federal Insurance Contributions Act- FICA is a payroll tax imposed on employers and employees that fund Social Security and Medicare. Self-employed individuals pay on behalf of employers and employees.
Federal Withholding Rates- The federal income tax rate based on a person’s taxable income and filing/marital status.
Filing/Marital Status- Filing status helps define the type of tax return form a person will use, and is based on martial and family situation.
FUTA- The Federal Unemployment Tax Act rate is 6.0%, and employees can take a tax credit of up to 5.4% of taxable income. FUTA helps fund pay for people who’ve lost their jobs.
Gross Pay- The total amount of a person’s salary before taxes or other deductions are subtracted.
Income Tax- Taxes all individuals or entities must pay that varies with their taxable income.
Independent Contractor-A person or business that provides goods or services to another person or business specified in some type of verbal or written agreement.
Individual Retirement Agreement- A personal retirement savings plan available to anyone, regardless of age, that makes yearly taxable income.
Involuntary Deductions- Deductions made to an employee’s paycheck by his or her employer that are often court ordered and needed to satisfy debt.
Medicare Tax- Part of the FICA, the Medicare tax funds Medicare hospital insurance for certain Americans. The rate is 2.9%.
Minimum Wage- The minimum hourly wage an employer can pay for work. The federal wage is $7.25. States can have their own rates.
Net Pay-The amount workers make after all their deductions are taken from their checks.
Overtime Pay- Non-exempt employees who work over 40 hours in a week must be given this pay, which is equal to at least time and one-half of their regular rates.
– A pay period is the number of days for which an employee is paid. Workers are commonly paid weekly, bi-weekly, semi-monthly or monthly.
Reciprocity- An agreement between two states that allow residents of one to request tax exemption from the other.
Social Security- Part of FICA, Social Security helps fund benefits for retirees. The current rate is 6.2% for both employees and employers.
SSN-A social security number is a nine-digit number given to U.S. citizens, permanent residents and temporary working residents.
Take-Home Pay- The amount of pay a worker takes home from each paycheck after all deductions and other withholdings have been taken out.
Voluntary Deductions- Voluntary deductions from a person’s wages are only held with the permission of the employee. These vary by employer, but can range from life insurance programs to health insurance. These take a portion of a person’s check.
Wages-A fixed regular payment made by an employer to an employee for a job or task.
Withholding Tax- A government requirement for all taxpayers that come from an employee’s pay.