A type of ACH payment that allows employers to transfer employees’ wages directly into their bank accounts, thereby avoiding paper checks. role of financial management in law firm success A network that enables the electronic transfer of funds, from one bank account to another. For example, during payroll processing, the employer transfers funds from the company’s bank account to each respective employee’s bank account.
Taxable wage base
Handling your own payroll for your business can be tricky because the payroll/payroll tax process involves a vocabulary all its own. These terms are the most important ones you’ll encounter as you begin to work on employee paychecks and start the payroll process. To get started, just share a few basic details about your business.
Federal Income Tax Withholding
Gross pay is the worker’s hourly rate times the number of hours worked in that pay period for hourly employees. The payment is considered fully taxable for the first six months, then becomes exempt from FICA and FUTA if the payments continue into the seventh month and beyond. These payments need to be shared with the employer and recorded on the employer’s tax returns, including employee W-2s. The amount an employer is required by law to take out of an employee’s wages for a specific payroll tax. Paycheck deductions that are subtracted from an employee’s wages before withholding applicable taxes.
Businesses often entice employees to work the graveyard shift by paying a few dollars more per hour or a percentage cost insurance and freight cif definition increase on their regular hourly pay. State Unemployment Tax Act (SUTA) taxes fund state-administered unemployment programs. SUTA is an employer-paid tax, except in Alaska, New Jersey, and Pennsylvania, where both employers and employees chip in. The term “pay period” refers to the frequency with which an employer chooses to pay employees and contractors. The chosen pay period is defined by its beginning and ending dates. The W-2 form is a lot like a 1099, but it is used to report wages earned for traditional employees.
An employer’s federal employment tax liabilities that must be paid to the IRS. Includes federal taxes withheld from employees’ wages and the employer’s share of federal employment taxes owed. Taxable wages are the earnings from which an employer must withhold taxes. The definition of taxable wages depends on the tax you’re talking about. For example, taxable wages for federal income tax withholding isn’t the same as taxable wages for FICA taxes. Unlike payroll taxes, employers never contribute to paying their employees’ federal or state income taxes.
- An application that employers use to automate, manage, and streamline payroll processes, including wage payment and tax reporting.
- An employee’s pay after legally-required deductions (such as payroll taxes) are taken out.
- Also called “mandatory deductions,” involuntary deductions are legally-required payroll deductions, such as payroll taxes and wage garnishments.
- Applies to employers who must withhold local taxes from employees’ wages and/or pay their own share of local employment taxes.
Form W-2
They must be over a standard salary level of $684 a week ($35,568 a year for a full-year worker) to be exempt. You must pay them overtime if an exempt employee is paid less than $684 a week. You should be comfortable with the common terminology even if you have an accountant to do your payroll accounting or you use payroll software or a payroll service company. We’ve also included clear examples and related resources so you can understand what all those acronyms and accounting terms mean. The portion of an employee’s wages that is subject to Social Security tax.
Tip Credit
Gross pay, also called gross wages, is the total amount an employee earns before payroll deductions. A mechanism to factor in tip payments when calculating minimum wage. It permits an employer to apply a percentage of an employee’s tips towards the employer’s obligation to pay the minimum wage. The U.S. Department of Labor requires employers to keep all payroll records for three years. The IRS requires that all tax records, including those for payroll taxes, be kept for at least three years, and longer in some cases.
The W-2 also contains information pertaining to taxes withheld (such as Social Security) and compensation outside of wages (such as moving allowances). The Electronic Federal Tax Payment System (EFTPS) was created in hopes of automating the otherwise clumsy process of handling physically mailed tax payments. With EFTPS, employers and taxpayers can pay their taxes irs form 4562 instructions by phone or online free of charge. This program has greatly reduced costs for employers while making it easier for individual taxpayers to get their taxes in on time. A 401(k) plan allows employees to contribute a portion of their salary on a pre-tax and/or post-tax basis for retirement. It is common for employers to offer a matching contribution to encourage participation, typically up to a certain percentage.