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Payroll System:

What is Payroll:
In a company, payroll is the sum of all financial records of salaries for an employee, wages, bonuses and deductions. In accounting, payroll refers to the amount paid to employees for services they provide during a certain period of time. Payroll plays a major role in a company for several reasons. From an accounting point of view,payroll is crucial because payroll and payroll taxes considerably affect the net income of most companies and they are subject to law and regulations (e.g. in the US payroll is subject to federal and state regulations).

PAYROLL = SUM(WAGES+BONUS+DEDUCTIONS)

There are generally three types of federal employment taxes:

Employee Income Tax Withholding Federal Insurance Contributions Act (FICA) Federal Unemployment Tax Act (FUTA)

Employee Income Tax Withholding:

Employee Income Tax Withholding is the amount withheld from the employee's wage to offset their projected annual income tax due to be paid by April 15th of the following year.

Federal Insurance Contributions Act (FICA):

The Federal Insurance Contributions Act (FICA) consists of two components commonly referred to as Social Security and Medicare.

Strictly speaking, FICA provides for a federal system of old age, survivors, and disability insurance (OASDI) and hospital insurance (HI). The OASDI component is financed through the social security portion of FICA and the HI component (for persons 65 or older) is financed through themedicare portion.

Federal Unemployment Tax Act (FUTA):


The Federal Unemployment Tax Act (FUTA) was implemented to fund a federal program to provide unemployment compensation benefits to eligible employees who have lost their jobs. The FUTA system does not pay unemployment benefits directly to displaced workers, but rather coordinates the payment of these benefits with each state. Unemployment benefits are paid in compliance with each state's unemployment compensation laws.

Federal Employment Taxes:

There are basically three types of federal employment taxes: Employee only, Employer only, and Employee and Employer Taxes.

Employee Only: Each employee is subject to Federal Income Tax (FIT) and files a personal income tax return, IRS Form 1040, at the end of the year. Federal income tax is withheld from each paycheck to offset their federal tax liability

Employer Only: Each employer is responsible for paying Federal Unemployment Tax (FUTA) on the first
$7,000 of annual wages for each employee.The effective FUTA rate is generally 0.8%, subject to certain state unemployment insurance requirments

Employee and Employer: Both the employee and employer are responsible for FICA tax. FICA is made
up of two components, social security and medicare.

FICA taxes:
The Federal Insurance Contributions Act (FICA) consists of two components commonly referred to as Social Security and Medicare. Strictly speaking, FICA provides for a federal system of old age, survivors, and disability insurance (OASDI) and hospital insurance (HI). The OASDI component is financed through the social security portion of FICA and the HI component (for persons 65 or older) is financed through the medicare portion.

Basic federal income tax withholding rules: Federal income tax is withheld from wages at the time they are actually received be/paid to the employee. The amount to withhol dis based upon three factors:

1 - The amount of taxable wages paid during the period 2 - The method used to determine federal income tax withholding 3 - The pay frequency, employee's marital status, and number of personal allowances claimed of Form W-4.

Deduction :
A deduction, in the broadest sense, is any reduction from gross pay applied to an employee's paycheck to derive netpay.Deductions can be voluntary or involunary, meaning they can be initiated by the employee or required of the employee without their consent. Common examples of voluntary deductions include retirement contributions (401(k), IRA), insurance premiums (medical, dental, vision), and child care.Common examples of involuntary deductions include child support, tax levies, and other court orders.

Garnishment:
A garnishment is a type of deduction ordered by the court to withhold and pay portions of an employee's wages to satisfy creditor demands. The most common garnishments include support orders, repayments due to bankruptcy, tax levy, or from general creditor debts.

Payroll Acronyms
ACH Automated Clearing House ADA Americans with Disabilities Act AEIC Advanced Earned Income Credit COBRA Consolidated Omnibus Budget Reconciliation Act DBA Doing Business As DOL Department of Labor DOR Department of Revenue EE Employee EEOC Equal Employment Opportunity Commission EFT Electronic Funds Transfer EFTPS Electronic Federal Tax Payment System EIC Earned Income Credit EIN Employer Identification Number ER Employer ERISA Employee Retirement Income Security Act FICA Federal Insurance Contributions Act FITFederal Income Tax FLSAFair Labor Standards Act FMLA Family & Medical Leave Act FTP File Transfer Protocol FUTA Federal Unemployment Tax Act ICESA Interstate Conference of Employment Security Agencies IRS Internal Revenue Service MAGI Modified Adjusted Gross Income

MMREF Magnetic Media Reporting & Electronic Filing MSA Medical Savings Account NACHA National Automated Clearing House Association NAICS North American Industrial Code System OASDI Old Age Survivors, Disability Insurance OFI Originating Financial Institution OSHA Occupational Safety and Health Administration PIN Personal Identification Number POA Power of Attorney POP Premium Only Plan PTO Paid Time Off QTD Quarter-to-Date SIC Standard Industrial Code SIT State Income Tax SSSocial Security SSA Social Security Administration SSN Social Security Number SUI State Unemployment Insurance SUTA State Unemployment Tax Act TEFRA Tax Equity Fiscal Responsibility Act TFB Taxable Fringe Benefit TIN Taxpayer Identification Number VPDVariable Pay by Department YTD Year-to-Date 3PSP Third Party Sick Pay