Partners Human Resources and Payroll

Glossary of Terms

Federal Insurance Contributions Act (FICA) tax is a United States federal payroll (or employment) tax[1] imposed on both employees and employers to fund Social Security and Medicare[2] —federal programs that provide benefits for retirees, the disabled, and children of deceased workers. The tax also provides funds to the health care system for institutions that provide healthcare for workers that do not have health insurance and can not afford healthcare treatment. Social Security benefits include old-age, survivors, and disability insurance (OASDI); Medicare provides hospital insurance benefits for the elderly. The amount that one pays in payroll taxes throughout one’s working career is associated indirectly with the social security benefits annuity that one receives as a retiree.[3] This has caused some to claim that the payroll tax is not a tax because its collection is tied to a benefit.[4] The United States Supreme Court decided in Flemming v. Nestor (1960) that no one has an accrued property right to benefits from Social Security. The Federal Insurance Contributions Act is currently codified at Title 26, Subtitle C, Chapter 21 of the United States Code.[5]

The Federal Unemployment Tax Act (or FUTA, I.R.C. ch. 23) is a United States federal law that imposes a federal employer tax used to help fund state workforce agencies. Employers report this tax by filing an annual Form 940 with the Internal Revenue Service. In some cases, the employer is required to pay the tax in installments during the tax year.

FUTA covers a federal share of the costs of administering the unemployment insurance (UI) and job service programs in every state. In addition, FUTA pays one-half of the cost of extended unemployment benefits (during periods of high unemployment) and provides for a fund from which states may borrow, if necessary, to pay benefits.

The State Unemployment Tax Act (SUTA) describes state unemployment taxes imposed on employers. The majority of employers are responsible for paying federal and state unemployment taxes. Employers are responsible for paying an employee’s FUTA taxes under the Federal Unemployment Tax Act. Each state determines its SUTA tax rate. In most states, employers are responsible for paying state unemployment insurance taxes to fund their state unemployment insurance system.

W2 or w2 can refer to:

  • Form W-2, a United States federal tax form issued by employers and stating how much an employee was paid in a year

 

• The W-4 is an Internal Revenue Service (IRS) form you complete to let your employer know how much money to withhold from your paycheck for federal taxes.

Form I-9 is used for verifying the identity and employment authorization of individuals hired for employment in the United States. All U.S. employers must ensure proper completion of Form I-9 for each individual they hire for employment in the United States. This includes citizens and noncitizens. Both employees and employers (or authorized representatives of the employer) must complete the form. On the form, an employee must attest to his or her employment authorization. The employee must also present his or her employer with acceptable documents evidencing identity and employment authorization. The employer must examine the employment eligibility and identity document(s) an employee presents to determine whether the document(s) reasonably appear to be genuine and to relate to the employee and record the document information on the Form I-9. The list of acceptable documents can be found on the last page of the form. Employers must retain Form I-9 for a designated period and make it available for inspection by authorized government officers. NOTE: State agencies may use Form I-9. Also, some agricultural recruiters and referrers for a fee may be required to use Form I-9.

Direct deposit

Also known as direct credit, is a banking term that describes a deposit of money straight from the source into a bank account, by electronic funds transfer, or other means where the payment is initiated by the payer not the payee. The money is transferred directly to the recipient bank through a payment system.

Direct deposits facilities are often a feature of online banking systems. The direct deposit or direct credit facility is often better known by country specific payment systems used to action these payments.

Payroll Debit Cards

  • There are a number of benefits to payroll debit cards, for both the employer and the employee. Employers, for example, save money on issuing paper checks to employees. Large companies with many employees can save thousands of dollars this way.
  • For employees, payroll debit cards provide quick, dependable delivery of their paychecks. Employees do not have to come into the office to pick up their paycheck, or make a trip to the bank or check-cashing store.
  • The card provides reliability. Employees with a debit card do not need to carry around lots of cash, which could be stolen. If an employee’s card is stolen or lost, most companies offer fraudulence protection and will give the employee a new card.
  • A card also offers flexibility. Employees can typically load salaries from multiple employers onto the card, and even take the card with them when they switch jobs.
  • Payroll debit cards offer the most benefit to those who do not have bank accounts (this accounts for nearly 17 million adults, according to a 2011 survey by the Federal Deposit Insurance Corporation). These employees cannot participate in direct deposit options for payment, because they do not have bank accounts. Thus, these employees typically have to rely on check-cashing services to cash their paychecks, which can be expensive.
  • Employees are also guaranteed privacy of purchase; the company that issues the card, not the cardholder’s employer, will track what the employee spends.

 

The Tax Equity and Fiscal Responsibility Act of 1982 (Pub.L. 97–248),[1] also known as TEFRA, was a United States federal law that rescinded some of the effects of the Kemp-Roth Act passed the year before. As a result of ongoing recession, a short-term fall in tax revenue generated concern over the budget deficit. TEFRA was created in order to reduce the budget gap by generating revenue through closure of tax loopholes and introduction of tougher enforcement of tax rules, as opposed to changing marginal income tax rates. TEFRA was introduced November 13, 1981 and was sponsored by Representative Pete Stark of California. After much deliberation the final version was signed by President Ronald Reagan on September 3, 1982.

Reporting Tip Income
Tips your employees receive from customers are generally subject to withholding. Employees are required to claim all tip income received. This includes tips you paid over to the employee for charge customers and tips the employee received directly from customers.

Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return
Use this form to report your annual Federal Unemployment Tax Act (FUTA) tax. Together with state unemployment tax systems, the FUTA tax provides funds for paying unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. Only employers pay FUTA tax. Do not collect or deduct FUTA tax from your employees’ wages.

Form 941, Employer’s Quarterly Federal Tax Return
Employers who withhold income taxes, social security tax, or Medicare tax from employee’s paychecks or who must pay the employer’s portion of social security or Medicare tax, use Form 941 to report those taxes.

A 1099 Form reports income from self employment earnings, interest and dividends, government payments, and more. Here are some details.

Independent contractor income
If you are a worker earning a salary or wage, your employer reports your annual earnings at year-end on Form W-2. However, if you are an independent contractor or self-employed you will receive a Form 1099-MISC from each client that pays you at least $600 during the tax year. For example, if you are a freelance writer, consultant or artist, you hire yourself out to individuals or companies on a contract basis. The income you receive from each job you take should be reported to you on Form 1099-MISC. When you prepare your tax return, the IRS requires you to report all of this income and pay income tax on it.


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