W2 Employee: Works directly for employer, adheres to schedules set by employer. Fills out a W4 for the employment. Receives a W2 at year end.
W4: Employee’s Federal Withholding Certificate. Employees complete the form to indicate their federal tax status which determines how much tax should be withheld from their check.
AR4EC: Employee’s State (Arkansas) Withholding Certificate. Employees complete the form to indicate their state tax status which determines how much tax should be withheld from their check.
I-9: Verifies the identity and employment authorization of the employee. This form needs to be completed by the employee and employer on the employee’s first day of employment.
W2: Reports an employee’s annual wages and taxes withheld to be filed with the IRS at year end.
The deadline for employers to provide this form to their employees (past and present) is January 31st following the year in which the employee was employed.
W3: Summary report used by the employer that combines employee income for all employees employed during the previous year.
1099 Contractor: Contracted Labor, treated like a business doing services. Responsible for employer and employee portion of taxes. Fills out a W9 for their contracted labor. Gets a 1099 at year end—they can use their social for 1099 filings or form an entity and use the entities EIN (employment Identification number).
1099-NEC: Form reporting non-employee compensation (contracted laborer would receive a 1099-NEC)
1099-Misc: Form reporting miscellaneous compensation (rents, payments to other businesses)
EE: Employee
ER: Employer
PEO: Professional Employer Organization.
For companies that use PEOs, the PEO becomes the employer of record for the companies employees and assumes certain employer responsibilities on the companies behalf. Typically, employers use PEOs for health/workers comp benefits.
Manual: A check that is written/recorded outside of payroll. Can be a paper check that we print or a recording of a check that the client writes.
Live Check: A physical (paper) check
DD: Direct deposit, electronic transfer of net pay to the employee’s bank account.
Earning: Money earned in return for labor by employee (regular, overtime, PTO, bonus, commission, etc).
Gross Pay: Total pay before any taxes and deductions.
Net Pay: Pay remaining after taxes and deductions have been taken out of an employee’s check. This is the money that the employee receives.
Voluntary Deduction: Money withheld from an employee’s check by an employer that is voluntarily being withheld (health insurance, dental insurance, 401k, etc).
Involuntary Deduction: Money withheld from an employee’s check by an employer that is involuntarily being withheld (garnishment, child support).
Minimum Wage: Minimum amount per hour that a state is required to pay an employee. The federal minimum wage is often lower but many states are required minimums that must be paid instead.
Stipend: A fixed amount of pay that is paid to an employee. Can be for performing certain tasks or it can be a reimbursement for work related expenses or health benefit coverage not provided by the company.
Severance: Payment to an employee who is involuntarily terminated.
Per Diem: Daily allowance paid to an employee to cover incurred costs from business related travel
Gross Up: The act of increasing the gross amount of a pay so that the employee nets the amount of pay requested
Cash Tips: Tips earned and paid out to a tipped employee at the end of their shift. These tips are recorded in payroll and taxed by social security and Medicare but are not paid out.
Credit Tips: Tips earned by a tipped employee but paid out on their paycheck.
3rd Party Sick Pay: Enables employees who are sick, injured, or temporarily disabled to receive pay while they are out of work.
FMLA: Family Medical Leave Act. Allows employees to take unpaid, job protected leave for specific medical or family reasons for 12 work weeks in a 12 month period.
Qualifications: Have worked with that employer for 12 months, have worked 1,250 hours during the 12 months, work for an employer with more than 50 employees
Fringe benefit: A benefit an employee receives from their company that needs to be recorded in the employees check for the employee to pay tax on the benefit.
S-Corp Insurance: Owners Health insurance that is typically recorded as a fringe benefit.
Reimbursement: Pay back to employees for business expenses incurred while working that is non-taxable (a good example is mileage reimbursement).
Pre-Tax: a deduction taken from an employee’s check before taxes are calculated, reducing taxable income.
Post-Tax: a deduction taken from an employee’s check after taxes are calculated.
Section 125/Caf (Cafeteria) Plan: type of insurance that is a pre tax deduction (ie medical, dental, vision)
Note: Not all insurance deductions are pre tax deductions.
Standard deduction: post tax deduction that reduces an employee’s check (i.e., uniform, child support, garnishment, etc.)
401k: A type of Pre-Tax retirement plan that is deducted from the employees check. It is FIT and SIT exempt but not FICA exempt. The funds are taxed when withdrawn by the employee during retirement. Refer to the Wages and Payroll Tax Facts handout for annual limits.
Roth 401k: A type of Post Tax retirement plan that is deducted from the employees check. The funds are withdrawn during retirement with no applied taxes. Refer to the Wages and Payroll Tax Facts handout for annual limits.
IRA: Individual Retirement Arrangements. A Pre-Tax retirement plan that is deducted from the employee’s check. It is FIT and SIT exempt but not FICA exempt. The funds are taxed when withdrawn by the employee during retirement. Refer to the Wages and Payroll Tax Facts handout for annual limits.
Roth IRA: Individual Retirement Arrangements. A Post Tax retirement plan that is deducted from the employees check. The funds are withdrawn during retirement with no applied taxes. Refer to the Wages and Payroll Tax Facts handout for annual limits.
403b: A retirement plan offered by non profits and government employees. A Pre Tax retirement plan that is deducted from the employee’s check. It is FIT exempt but not FICA exempt. The funds are taxed when withdrawn by the employee during retirement. Has the same contribution limits as a 401k
Safe Harbor Match: Employer dollar-for-dollar matching contribution on an employee’s elective retirement deferral on the first 3%, 50% matching contribution on elective deferral on the next 2%.
Group Term Life: Life insurance offered to eligible employees at a company. This allows for affordable coverage in comparison to individual coverage term life insurance.
Garnishment: A court order directing an employer to withhold funds from an employees check to settle unpaid debt (student loan, child support, bankruptcy etc)
Vendor: The entity who is owed funds from an employee. When tied to a deduction the funds are taken from an employee check and a check is cut for the entity with the withheld funds.
New Hire Reporting: Federal and State law requires all new hires are reported to the Office of Attorney General. This is used for determining unemployment benefits, allowing Garnishments and Child Support orders to reach the correct employer.
Taxable Wages/Income: Amount of income used to calculate how much tax is owed to the government/the amount of income subject to tax.
Example: $1000 gross earnings with $200 Pre-Tax deduction results in $800 of taxable wages.
Hourly Non-Exempt: Employees who are paid on an hourly basis and are eligible to receive overtime compensation.
Overtime: any hours worked over 40 hours in a work week. These hours are paid out at 1.5x the employees hourly rate of pay
Salary Exempt: Employees who are paid on a salary basis and are not eligible to receive overtime compensation.
Salary Non-Exempt: Employees who are paid on a salary basis and are eligible to receive overtime compensation.
Pay Period: reoccurring length of time where employee’s time is recorded to be paid on Check date. Pay periods control how employee’s earnings are taxed.
Weekly Pay Period: weekly cycle, 52 pay periods in a year, 2080 hours in a year.
Bi-Weekly Pay Period: 2 week cycle, 26 pay periods in a year ,2080 hours in a year.
Semi-Monthly Pay Period: 2 cycles in a month, 24 pay periods in a year, 2080 hours in a year.
Prorating salary employees should be done by daily rate and
not divided by days worked and days in a semi-monthly pay period—below are two
examples of calculatio
Monthly Pay Period: 1 cycle in a month, 12 pay periods in a year, 2080 hours in a year
Quarterly and Annual Pay Period: used for scorp/owners.
EFTPS: Electronic Federal Tax payment system
The funds for EFTPS clients are paid from the client’s bank account.
TTF: Total Tax Filing
The funds for TTF clients are impounded and therefore pulled out in a lump sum.
Reverse Wire: Wire initiated by Kotapay instead of the client. The funds are guaranteed before employee’s direct deposit funds go out.
Tax Liability: Tax that an employer withholds from an employee’s earnings as well as tax incurred by the employer from the employee’s earnings.
Employers submit the full liability to the applicable agency. This includes the employee’s portion that is withheld from the employee’s earnings.
Federal Liabilities: Social security, Medicare, Federal Income Tax (FIT)
Social Security - Both employee and employer are levied to fund the social security fund.
Tax rate for EE is 6.2%, ER tax rate is 6.2%. Limit for 2024=$168,600
Medicare - Both EE and ER are levied to fund Medicare program
Tax rate for EE is 1.45%, ER tax rate is 1.45%. does not have a limit, but rather an increase in rate when wages are in excess of $200,000. An additional 0.9% equaling 2.35% for those wages.
Additional percentage only applies to employee, not employer.
Note: FICA=Medicare and SS
FIT- Levied on EE only. Liability is based on the employee’s annual taxable income, withholding status, and pay period. Each payroll’s gross earnings will determine the FIT calculation for the employees’ check (Publication 15T).
Federal Liability Tax Deposits: a combination of the employee and employer ss taxes, employee and employer Medicare taxes and FIT. Made in one payment to the IRS .
Over 100k tax deposit rule: if total federal tax liability is over 100k, liability must be deposited next banking day from check date.
Note: We notify our Tax department when we see this so Tax can make the change in payment schedule.
941s are filed quarterly based on the federal liabilities recorded throughout the applicable quarter. The deposits made after each payroll should reconcile with what is states on the 941.
Schedule B accompanies the 941, it is a tax worksheet used to report the tax liability for each payroll during the quarter being filed.
State Liabilities: State income tax
State income tax (SIT)- direct tax levied on employees income by the state. EE only liability. Tax varies by state. Texas does not have SIT.
Local taxes: taxes collected by a local authority. EE only liability.
EEs can have SIT and Local taxes depending on where they live.
Home State: where employee lives and works.
Work state: State outside of where you live that you are working in.
An employee might have to pay taxes in that state depending on their home state and work state have a reciprocal agreement.
Tax Reciprocity/Reciprocal Agreement: lowers tax burden on an ee. 2 states agree not to tax the same income. The ee then becomes exempt in the state they work in and only pay taxes for their home state.
Unemployment liabilities: Federal unemployment tax (FUTA), State unemployment Tax (SUTA)
FUTA: levied on ER only, funds the governments unemployment account. With state systems, provides payments of unemployment compensation to employee’s who have lost their jobs. Rate=0.6%, Limit of $7,000 per employee annually ($42 per employee annually)
940 used to reconcile FUTA taxable wages, liability and amounts paid each quarter but filed annually.
Schedule A is used when an employer pays unemployment in more than one state or when they paid wages in a state that has a credit reduction.
SUTA: Levied on ER Only, funds the state unemployment fund. Provides payments of unemployment compensation to employees who have lost their job in conjunction with FUTA.
Each state has their own tax rate, rate is determined by many factors for an er (turnover, how long they have been in business, # of employees making unemployment claims)
AR limit is $7,000 pr employee annually
944: This form is instead of a 941. It is filed annually based on the federal liabilities recorded throughout the applicable quarter. The deposits made after each payroll should reconcile with what is states on the 944. Only employers whose annual employment tax liability is less than $1,000 and have received approval from the IRS are eligible to file Form 944.