The Social Security tax applies to the first $142,800 of eligible compensation in 2021. The Medicare tax doesn’t have a limit, though higher-earning employees must contribute an additional 0.9%. Pay periods what is a suspense account examples and how to use refer to how frequently a business runs payroll. The Fair Labor Standards Act (FLSA) requires employers to pay employees regularly. Your pay-period options are weekly, biweekly, semimonthly, or monthly.

That’s in contrast to FUTA, which charges a uniform rate for every employee at every business. Health Savings Account (HSA) funds can be used for qualified medical expenses and are wholly owned by the employee. Those funds are not subject to certain taxes at the time of deposit.

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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. Federal Insurance Contributions Act (FICA) taxes comprise Social Security and Medicare taxes. They’re payroll taxes that both employees and employers pay based on eligible employee compensation.

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• The employee’s wages that remain after all normal deductions and taxes are taken out.
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• W1 is the total salary, wages and other payments from which you are usually required to withhold PAYG.

The individual regulations in FLSA may, under certain circumstances, be superseded by state and local laws. Minimum wage is the lowest hourly pay rate you’re legally allowed to pay an employee. Per the Department of Labor (DOL), the federal minimum wage rate is currently $7.25 an hour, but state rates vary. Tipped employees are another group you’ll find the law makes exceptions for. Federal tipped minimum wage is $2.13 an hour, but employers must ensure that employee tips make up for the differential.

Payroll Terms You Should Know

An acronym for Automated Clearing House, ACH refers to an electronic network dedicated to credit and debit transfers. There are 8.75 million indigenous Native Americans and Alaska Natives in the US (about 2% of the population). While the Supreme Court overturned Roe v. Wade in June 2022, Pew Research Center polling shows 62% of Americans’ support abortion rights. Besides women’s right to reproductive health decisions being a 2024 election deal-maker, immigration reform will also, implicitly, be on the Nov. 5 ballot.

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They are not paid overtime rates for hours exceeding 40 in a week. A shift differential is a premium amount that you can pay employees who work outside of normal business hours. For some companies, this is the overnight shift and weekends.

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Exempt – Amounts that are not considered part of the taxable compensation. These amounts would be subtracted from the gross pay (total compensation) before the calculations of each applicable tax are completed. Amounts that are not considered part of the taxable compensation. An employee's federal income tax withholding is determined by using the information on a Form W-4 completed by the employee at hire and for state income tax by a state W-4 or another tax form. Supplemental wages include any earnings employees incur outside of the agreed-upon pay rate. Supplemental wages are taxed differently than regular wages.

Withholding doesn't have to be approved by employees because these amounts are required by law. But all deductions from an employee's paycheck except for deductions ordered by a court must be approved by the employee in writing. Get the basics on payroll processing and how outsourcing can benefit your company. Most pay stubs also give employees an update on how many vacation and sick days they’ve accrued and used during the year.

FICA

It comprises the employer’s portion of Federal Insurance Contributions Act (FICA) taxes, unemployment taxes, and workers’ compensation. The Social Security Wage Base is the maximum gross earnings subject to Social Security tax for employees. 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 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.