Glossary of Payroll Terms

Automated Clearing House (ACH)

Federal Reserve Bank or private financial institution acting on behalf of an association operating a facility that serves as a clearinghouse for direct deposit.

Compensation

All cash and non-cash remuneration given to an employee for services performed for the employer.

Constructive Receipt

Occurs when wages are made available to an employee, not when they are earned (paycheck, direct deposit advice form).

Deduction

An amount subtracted from an employee's gross pay to reach net pay.

Direct Deposit

The electronic transfer of an employee's net pay directly into financial institution accounts designated by the employee, thus avoiding the need for a paycheck.

Disposable Earnings

The part of the employee's check remaining after deductions required by law (taxes); it is used to determine the amount of an employee's pay that is subject to a garnishment, attachment, or child support withholding.

Earned Income Credit

A tax credit that is available to low-income employees; it may be taken when the employee files his or her individual tax return.

Federal Income Tax Withholding (FITW)

Describes the combined taxes levied for Social Security and Medicare.

Federal Insurance Contribution Act (FICA)

Describes the combined taxes levied for Social Security and Medicare.

Form 1042-S

A 1042-S Form is a year-end tax document given to a non-resident alien who received wages protected by a tax treaty, or received a qualified or non-qualified scholarship

Form 8233

Exemption from withholding on compensation for independent personal services of a non-resident alien individual, is an IRS-issued form that must be filed by any NRA claiming exemption from Federal income tax withholding based on a tax treaty.

Form I-9

Immigration & Reform Act Form used to verify identification and eligibility to work.

Form W-2

Wages and Tax Statement: employers must file a form W-2 to report the total amount of wages paid and taxes withheld for each employee in a calendar year.

Form W-4

Employee’s Withholding Allowance Certificate; the W-4 tells the employer how many withholding allowances the employee is claiming along with the employee's marital status; it also tells the employer if the employee claims exemption from withholding.

Garnishment

A legal proceeding that authorizes an involuntary transfer of an employee's wages to a creditor to satisfy debt.

Gross Income

Compensation for services, including fees, commissions, fringe benefits, and similar items.

Gross Pay

The total amount received from the employer before any deductions are made.

Medicare

Federal Hospital Insurance program for individuals age 65 or older and some disabled persons; it is funded through the hospital insurance component of FICA tax

Net Pay

The part of an employee's wages that remains after all deductions have been subtracted.

Non-Cash Fringe Benefits

Benefits provided to employees in some form other than cash.

Non-Qualified Scholarship (Stipend)

A scholarship received by a non-resident alien via a stipend check.

Non-Resident Alien (NRA)

A foreign national who is on a temporary visa and not making a permanent home in the U.S.

Qualified Scholarship

Awards of qualified scholarships are applied directly to the student's account - this includes tuition, fees, books, supplies, and equipment.

Resident Alien

A non-US Citizen making a permanent home in the U.S. A Resident Alien is taxed the same as a US Citizen.

Social Security (OASDI)

Old age, Survivors, and Disability Insurance; a component of FICA

Tax Levy

Requires employers to deduct an amount of money that the employee owes, plus any penalties and interest payments, from the employee's wages and remit to the proper government agency.

Withholding Tax Calculator
The purpose of this application is to help employees to ensure that they do not have too much or too little income tax withheld from their pay.