It can be difficult to keep up with legislation changes, amendments to state and federal tax laws, and other factors that can change employee pay amounts. Knowing some of the most common terms related to payroll services can help you shop for a vendor. Here is a basic list of payroll outsourcing terms and concepts. The IRS website or the State Tax Board site for your state will have more specific information about employee savings plans and tax calculations.
The time period covered in an income statement, usually quarterly and/or annually.
Advance Earned Income Credit
If employees are eligible for the federal earned income tax credit, they can take an “advance” by withholding less from each paycheck. Most payroll processing services can perform this calculation.
Archer Medical Savings Account
A pre-tax savings account where an employee or employer (not both) is able to deposit funds for use at a later date.
A plan where funds are taken out of employee wages “pre-tax” for child care, insurance, or other reasons. Internal Revenue Code §125 lists qualified plans.
Circular E Employers Tax Guide
This guide is published annually as an up to date outline of employer tax responsibilities.
Payment to employees for services rendered.
When wages are actually available to employees.
A delay of wage payment to a future date, such as for a pension plan or employee savings account.
Defined Benefit Plan
These plans define employer contributions to an employee account using a formula that takes into account salary and length of service.
A method of payment where employee pay amounts are deposited directly into a bank account.
EIN (Employer Identification Number)
How an employer is identified for tax purposes, or the IRS and state “code” for an employer.
EFPTS (Electronic Federal Tax Payment System)
This system allows an employer to pay employment taxes, transfer withholding amounts, and make deposits to qualified government savings plans electronically.
In payroll context, electing not to have tax amounts withheld from paychecks. An employee is “exempt” if he or she meets certain qualifications set forth in the tax code.
The acronym for Federal Insurance Contribution Amount, or the “social security tax” withheld from employee paychecks.
The amount set aside from employee wages that is used for the payment of employment and other taxes.
The total amount an employee receives in pay before any deductions are made.
Any person performs services for a business as a non-employee. The Internal Revenue Code defines independent contractors by a list of different factors.
IRA (Individual Retirement Account)
An account where an employee can deposit funds for retirement without incurring additional tax obligations. advantages.
A report generated at the end of an accounting period that specifies employee pay amounts, tax amounts withheld, and payments made in association with payroll services.
The most common method used to calculate how much tax to withhold from employee pay.
An order to withhold employee wages in order to make payment toward unpaid employee taxes.
An end-of-year statement of earnings, withheld amounts, and other payments made on behalf of an employee.
An employee form that specifies withholding amount and exemption status. Employees can amend W-4s at any time to change the amount of tax withheld from paychecks.