Common payroll terms

Additional Medicare Tax

An extra Medicare tax withholding requirement that applies after an employee’s wages exceed the federal threshold for employer withholding.

Disposable earnings

Earnings remaining after deductions required by law. This term is important in many garnishment calculations.

Exempt employee

An employee who is exempt from overtime requirements under applicable wage and hour rules. Exempt status depends on duties and pay requirements, not job title alone.

FICA

The Federal Insurance Contributions Act taxes used for Social Security and Medicare. Employees and employers generally both pay FICA taxes.

Form 941

The employer’s quarterly federal tax return for reporting wages, federal income tax withholding, Social Security tax, and Medicare tax.

Form W-2

The annual wage and tax statement employers provide to employees and file with the government.

Form W-4

The employee withholding certificate used by employers to calculate federal income tax withholding.

Fringe benefit

Compensation provided in a form other than regular cash wages. Some fringe benefits are taxable and must be handled correctly in payroll.

Gross pay

Total pay before taxes and deductions.

Net pay

Pay remaining after taxes and deductions are withheld.

Pre-tax deduction

A deduction taken before certain taxes are calculated. Treatment varies by deduction type and tax.

Supplemental wages

Wage payments that are not regular wages, such as bonuses, commissions, overtime, or certain awards.

Taxable wage base

The maximum amount of wages subject to a specific tax for a year, when a wage base applies.

Withholding

Amounts an employer deducts from wages for taxes, garnishments, benefits, or other required or authorized purposes.