Payroll Services Glossary

Here some important terms pertinent to payroll services:

125(k) Plan: a “Flex” or “Cafeteria Plan.” in which employees’ have money deducted from their pay to fund certain benefit plans; premium payments are typically taken on a pre-tax basis, reducing the employee’s federal, Social Security, Medicare and most state taxes.
401(k) Plan: a cash deferred arrangement that allows employee’s to authorize their employer to place pre-tax money in a retirement plan that invests the employee’s dollars. The contributions and any earnings on them are not subject to federal income tax until they are withdrawn.
403(k) Annuity: a mutual fund that provides retirement income for employees of public schools and certain tax-exempt organizations.
Advance Earned Income Credit (AEIC): is the payment of earned income credit during the year to employees who expect to be eligible for the credit; employers make the payments out of federal income, Social Security and Medicare taxes withheld from the employees’ wages.
Annual Wage Reporting (AWR): is the Social Security Administration’s system of recording wages reported annually by employers.
Automated Clearing House (ACH): when a private financial institution or a Federal Reserve Bank is acting as a clearinghouse for direct deposit transactions. Entries are transmitted by the Automated Clearing House under the rules of the association.
Child support Withholdings: the process of withholding amounts from an employee’s compensation to satisfy a child support order from a court or state child welfare administrative agency. The employer is responsible for withholding the amounts and paying them over to the party named in the withholding order.
Fair Labor Standards Act (FLSA): regulates minimum wage, overtime pay, and child labor laws for employers and employees covered by the law.
Federal Employer Identification Number (FEIN): is a number assigned to taxpayers and businesses by the federal government. This number is used for all tax transactions.
Internal Revenue Code (IRC): Federal tax laws.
Liabilities: are debts of a business that have yet to be paid.
Medicare: is a federal insurance program for individuals 65 or older and some disabled persons; it is funded through the hospital insurance component of FICA; employer and employees pay matching amounts, with no annual wage limit.
Social Security: the old age, survivors, and disability insurance
Taxpayer Identification Number (TIN): is a Social Security number or employer identification number that serves as the taxpayer’s account number with the Internal Revenue Service (IRS) and Social Security Administration, (SSA).
Withholding: subtracting amounts from an employees wages for taxes, garnishments or levies, and other deductions, (medical insurance premiums, union dues); these amounts are then paid over to the government agency or other party to whom they are owed.