Payroll & Tax Terms
FICA-The Federal Insurance Contribution Act tax that pays for Social
Security and Medicare is split 50/50 between employers and employees. For 2008, each pays 7.65 percent on the first $102,000 of wages. The rate drops to 1.45 percent each for any additional wages (which is the Medicare portion of the tax). The amount to which the full rate applies rises to $106,800 in 2009.
Gross Earnings vs Net Earnings- Gross=before taxes Net=after taxes IRS- is the US government agency that collects taxes and enforces the
internal revenue laws. It is an agency within the U.S. Dept of the treasury responsible for interpretation and application of Federal tax law. The official US Treasury regulations provide
Social Security Tax vs Medicare- If you hold more than one job
during the year—either at the same time or successively—too much Social Security could be withheld from your pay. Each employer is required to withhold the full 7.65 percent tax from the first $102,000 of wages paid in 2008 . But no taxpayer has to pay the full tax on more than the annual limits. If wages from two jobs push you over the limit, too much tax will be withheld. You get a credit for the excess when you file your tax return for the year. The portion of the Social Security tax—1.45 percent for employees and 2.9 percent for self-employed taxpayers— that pays for Medicare. Although the part of the tax that pays for retirement benefits stops at $102,000 in 2008 ($106,800 in 2009),, the Medicare portion applies to all wages and selfemployment income.
Pay Period- A pay period is the number of days for which a regular, usually non-salaried
employee gets paid. Salaried employees tend to expect and receive the same pay no matter the length of the pay period, while workers paid by the hour can have variance in pay depending upon hours and days worked.
Payroll Clerk- A payroll clerk is a member of the payroll department who focuses on
activities that help to organize data that is related to the process of providing compensation to employees of the company.
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Payroll System- Keeps track of payroll Hourly Wage vs. Salary vs CommissionBonus-Extra money that can be earned Overtime Pay- Amount of money given to by working more than required Electronic Badge Reader- A machine that reads badges Tax Brackets- Each tax bracket encompasses a certain amount of
income to be taxed at a set rate. The rates now run from 10 percent to 35
percent. You are said to be in the 25 percent bracket if your highest dollar of income falls in that bracket. Even if you're in the 25 percent bracket, part of your income is taxed at the 10 percent rate and some at 15 percent. Some of your income—such as the amounts protected by your personal and any dependent exemptions and your standard or itemized deductions—is not taxed at all.
W-4 vs W-2-W-2 is what you get back at the end of the year Deductions –union dues, health insurance payments, life insurance
payments, pensions, charitable
Audit- As if you didn't know, this is a review of your tax return by the IRS,
during which you are asked to prove that you have correctly reported your income and deductions. Most audits are done by mail and involve specific issues, not the entire return.
State Taxes vs Local Taxes-State tax=from state and local tax=from city Turbo Tax-program that does taxes for you Tax Deductions- Expenses you are permitted to subtract from your
taxable income before figuring your tax bill. All taxpayers may claim a standard deduction amount - $ 10,900 for 2008 joint returns, for example, half that amount on individual returns. For 2009, the standard deduction will increase to $11,400 for joint returns and to $5,700 for individuals. If your qualifying expenses exceed your standard deduction, you may claim the higher amount by itemizing your deductions. Although no records are needed to back up your right to the standard deduction, you must maintain records of qualifying expenditures if you itemize. For higher income taxpayers, the amount of their otherwise allowable itemized deductions will be reduced when AGI exceeds a threshold amount. For 2008, the reduction is equal to the lesser of 1% of AGI over the threshold amount, or 80 percent of itemized deductions otherwise allowable. For 2008, the threshold amount is $159,950 for all returns except those returns filed married filing separately, for which the threshold is $79,975.
H & R Block- company that does taxes for you IRA vs Roth IRA- A reference to an IRA without the moniker "Roth" in
front of it is a reference to a traditional IRA, a tax-favored account designed to encourage saving for retirement. If your income is below a certain level or you are not covered by a retirement plan at work, deposits into a traditional IRA can be deducted. The maximum annual contribution for 2008 and 2009— deductible or not—is $5,000 or 100 percent of the compensation earned during the year, whichever is less. Those who are age 50 or older at the end of the year can add a $1,000 "catch-up" contribution, bringing their annual limit to $6,000 in 2008 and 2009. Also, a husband or wife can contribute part
of his or her compensation to an IRA for a non-working spouse. The tax on all earnings inside the IRA is postponed until you withdraw the funds. In most cases there is a penalty for withdrawing funds before you reach age 59 1/2. The right to deduct contributions phases out at higher income levels for those covered by a retirement plan at work. For single taxpayers covered by a company plan, the deduction phases out as income rises between $53,000 to $63,000 in 2008; for married couples filing joint returns, the deduction phases out as income rises between $85,000 and $105,000 in 2008. See Roth IRA. The back-loaded IRA is named after a chief supporter—the late Senator William Roth of Delaware. It's called back-loaded because the tax benefits come at the end of the line. Contributions are not deductible, but all withdrawals are tax-free, as long as they come after you reach age 59½ and at least four calendar years after the year in which the account was opened. Contribution limits are the same as for traditional IRA: $5,000 in 2008 and 2009, with an extra $1,000 catch-up contribution allowed for those age 50 and older. But there's a catch: If your income is too high, you can't contribute to a Roth IRA. What's too high? In 2008, the right to use the Roth IRA phases out between $101,000 and $116,000 for single returns and $159,000 and $169,000 for joint returns. If your income is under $100,000 (on either a single or joint return) you can roll over funds from a traditional IRA to a Roth IRA—so that all future earnings would be tax-free rather than simply tax-deferred. But to do so, you have to pay tax on the money you move from the old IRA to the Roth. In 2010, the $100,000 income limit disappears and anyone will be permitted to convert a traditional IRA to a Roth IRA.
Dependents- Someone you support and for whom you can claim a
dependency exemption on your tax return. For each dependent you claim, the exemption knocks $ 3,500 off your taxable income in 2008. The value increases each year with inflation. (It will be $3,650 on 2009 returns.) Each dependent under age 17 also qualifies his or her parent for a tax credit that's worth $1,000. Higher-income taxpayers (with AGI over $239,950 on 2008 joint returns, for example) can lose up to one-third of the value of the personal exemption, bringing its value down to as low as $2,333.
Federal Unemployment Taxes-money you pay given to unemployed people State Unemployment Taxes-more money taken from you and given to unemployed people Federal Tax Deposit Coupon- In general, you must deposit income tax
withheld and both the employer and employee social security and Medicare taxes
Form 940 vs Form 941- Form 940 is provided by employers to the Feds and
reports the amount of FUTA (Federal Unemployment Tax) that they must pay for their employees. The detail shows which employees (by SS # of course) are included for what amounts of FUTA taxable income.
Tax Day- april 15th
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Tax Extension- august 15th Social Security Numbers- nmber given to you at birth to identify you Flat Tax- is a tax system with a constant tax rate. Sales Tax-tax on sales Progressive Tax vs Regressive TaxTariff vs Quota-a limit vs taxes on products from another country Excise Tax- is a type of tax charged on goods produced within the country Property Taxes-tax on houses Gift Tax-tax put on large amount of money when given to someone else Inheritance Tax-tax put on inheritance money Estate Tax-tax on estates 401K Plan- An employer-sponsored retirement savings plan through
which employees divert part of their salary to a tax-deferred investment account. Salary put in the plan is not taxed until it is later withdrawn, presumably in retirement. Employers often match part or all of the employee's deposits. Penalties usually apply to withdrawals before age 55, although most plans allow employees to borrow limited amounts tax- and penalty-free from their accounts. For 2008, the limit for employees is $15,500—plus an extra $5,000 for those age 50 and older by the end of the year. The maximum contribution limits will increase to $16,500 (plus a $2,500 catchup for those 50 and older) for 2009 and continue to rise with inflation in the future. See also Roth 401(k).
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Direct Deposit-deposit taken directly form account Tax Evasion- an evasion of taxes Common Tax Deductions-tax deductions that are common CPAStandard Deduction vs Itemized Deductions Capital Gain- The profit from the sale of such property as stocks,
mutual-fund shares and real estate. Gains from the sale of assets owned for 12 months or less are "short-term capital gains" and are taxed in your top tax bracket, just like salary. For most assets owned more than 12 months, profits are considered "long-term capital gains" and are taxed at 15 percent.
Taxpayers who otherwise fall in the 10 percent or 15 percent bracket get an even better deal. Their rate on long-term gains is 0% percent for 2008, 2009 and 2010. The special rates for long-term gains do not, however, apply to all gains from investment real estate. To the extent that gain results from depreciation (depreciation deductions reduce your basis in the property and therefore increase gain dollar for dollar upon sale), a 25 percent rate applies (unless you are in the 10 percent or 15 percent bracket, in which case that rate applies) to this "recaptured" depreciation. Also, long term-gains from the sale of collectibles are taxed at 28 percent.
Capital Loss- The loss from the sale of assets such as stocks, bonds,
mutual funds and real estate. Such losses are first used to offset capital gains and then up to $3,000 of excess losses can be deducted against other income, such as your salary. Long- and short-term losses (distinguished by whether the property was held for more than one year or a shorter period of time) are first used to offset gains of a similar nature. Any excess first offsets the other kind of gain, then other types of income.