Payroll Glossary

70+ common U.S. payroll and paycheck terms, in plain English. Skim the list or search with Ctrl/⌘+F.

Gross pay: Total earnings before any taxes or deductions are withheld.
Net pay: The amount actually deposited to your account after taxes and deductions — also called 'take-home pay'.
FICA: The Federal Insurance Contributions Act, covering Social Security (6.2%) and Medicare (1.45%) taxes on wages.
Social Security tax: 6.2% federal payroll tax on wages up to a $184,500 wage base (2026). Funds retirement, disability, and survivor benefits.
Medicare tax: 1.45% federal payroll tax on all wages, plus 0.9% Additional Medicare on wages over $200,000 (single).
FUTA: Federal Unemployment Tax Act — a 6% employer-only tax on the first $7,000 of each employee's wages, mostly offset by state UI credits.
SUTA: State Unemployment Tax — paid by employers to fund state unemployment benefits. Not withheld from employee paychecks.
Withholding: The portion of your wages your employer sends directly to the IRS and state on your behalf.
W-4: IRS Form W-4 — the certificate employees complete to tell employers how much federal income tax to withhold.
W-2: IRS Form W-2 — the year-end statement showing total wages, tax withheld, and pre-tax benefits.
1099-NEC: IRS form issued to independent contractors reporting non-employee compensation of $600 or more.
Pre-tax deduction: Money taken from gross pay before income taxes are calculated — reduces taxable wages (e.g., 401(k), health premiums).
Post-tax deduction: Money taken from net pay after taxes (e.g., Roth 401(k), garnishments, union dues).
401(k): Employer-sponsored retirement plan. Traditional contributions reduce current-year federal taxable income; Roth contributions don't but grow tax-free.
HSA: Health Savings Account for high-deductible health plans. Triple-tax-advantaged: pre-tax in, tax-free growth, tax-free withdrawals for medical expenses.
FSA: Flexible Spending Account — pre-tax dollars for medical or dependent-care expenses; 'use it or lose it' by plan year.
Section 125 plan: IRS section allowing employees to pay for certain benefits (health, dental, vision) with pre-tax dollars via a cafeteria plan.
Standard deduction: Flat federal deduction that reduces taxable income — $16,100 single / $30,000 joint / $22,500 head of household in 2026.
Itemized deductions: Alternative to standard deduction — listing specific deductible expenses like mortgage interest, SALT (capped), and charity.
Marginal tax rate: The tax rate on the last dollar you earn. Not your total tax rate.
Effective tax rate: Total tax divided by total income — always lower than the marginal rate in a progressive system.
Filing status: Your tax category: single, married filing jointly, married filing separately, head of household, or qualifying surviving spouse.
Head of household: Filing status for unmarried taxpayers who pay more than half the cost of keeping up a home for a qualifying person.
Exempt vs non-exempt: Non-exempt employees receive FLSA overtime for hours over 40/week; exempt employees typically do not.
FLSA: Fair Labor Standards Act — federal law setting minimum wage, overtime, and youth employment rules.
Overtime: Pay at 1.5x regular rate for hours over 40/week under federal FLSA. Some states require daily overtime too (e.g., California).
Pay period: The window of time you're being paid for — weekly, bi-weekly, semi-monthly, or monthly.
Pay frequency: How often you're paid. 26 bi-weekly checks vs 24 semi-monthly checks produce slightly different per-check math.
Wage base: The maximum earnings subject to a payroll tax. Social Security's is $184,500 in 2026; Medicare has none.
Additional Medicare Tax: Extra 0.9% Medicare withholding on wages over $200,000 (single) / $250,000 (joint).
Cafeteria plan: Another name for a Section 125 plan — lets employees choose from a menu of pre-tax benefits.
Imputed income: Non-cash benefits (e.g., group-term life > $50k) that are taxable and added to your W-2 wages.
Garnishment: Court-ordered withholding for child support, tax debts, or private judgments.
Local wage tax: Municipal or county income tax withheld on top of state tax. Common in Ohio, Pennsylvania, Kentucky, Maryland, and NYC.
Reciprocity: Agreement between two states that lets a resident of one work in the other without owing tax to the work state.
State disability insurance (SDI): Employee-paid payroll tax in a few states (CA, HI, NJ, NY, RI) funding short-term disability benefits.
Paid Family Leave (PFL): Employee-paid payroll contributions in states like NY, NJ, CA, and WA that fund paid family leave benefits.
Bonus tax rate: The IRS supplemental wage rate — 22% for bonuses under $1M, 37% above. It's a withholding rate, not a final tax rate.
Tip credit: In some states, tipped workers can be paid a lower cash minimum wage as long as tips bring them to the full minimum.
Take-home pay: See 'Net pay' — what actually reaches your bank account.
YTD (Year-to-date): Cumulative wages, taxes, or deductions from January 1 through the current pay period, shown on every pay stub.
Pay stub: The itemized statement attached to each paycheck showing gross pay, taxes, deductions, and net pay for the period and YTD.
Direct deposit: Electronic transfer of net pay from an employer's bank account to the employee's account via the ACH network, usually same-day on payday.
ACH: Automated Clearing House — the U.S. bank-to-bank payment network that powers direct deposits and most electronic payroll transfers.
Gross-up: Increasing a payment so the employee receives a specific net amount after taxes. Common for relocation reimbursements and bonuses.
Supplemental wages: IRS category covering bonuses, commissions, overtime, severance, and RSUs. Employers can withhold at the flat 22% rate (or 37% above $1M).
EITC: Earned Income Tax Credit — a refundable federal credit for low- and moderate-income workers, claimed on your annual return.
Child Tax Credit: Up to $2,000 per qualifying child under 17 in 2026, partially refundable via the Additional Child Tax Credit.
Dependent Care FSA: A pre-tax account for eligible child or elder care expenses. 2026 limit: $5,000 per household.
SALT deduction: State And Local Tax deduction on federal Schedule A — combined income/property tax capped at $10,000 (post-TCJA).
Backup withholding: 24% federal withholding on payments to a payee who fails to provide a valid TIN, applied to interest, dividends, and 1099 income.
Wage garnishment: Court-ordered deduction from paychecks — for child support, IRS tax debts, student loans, or private judgments.
Federal Income Tax (FIT): Progressive tax withheld from wages using IRS Publication 15-T percentage or wage-bracket methods.
State Income Tax (SIT): State-level withholding, ranging from 0% (nine states) to over 13% top marginal (California).
SUI/SUTA: State Unemployment Insurance — employer-paid payroll tax funding state jobless benefits (rates vary by employer experience).
Workers' compensation: Employer-paid insurance covering medical care and lost wages from workplace injuries. Not withheld from paychecks.
EIN: Employer Identification Number — 9-digit IRS tax ID assigned to employers, used on all federal payroll filings.
Form 941: IRS quarterly return where employers report federal income tax, Social Security, and Medicare withheld and matched.
Form 940: IRS annual return where employers report and pay FUTA.
I-9: Employment Eligibility Verification form — completed by every new U.S. hire to confirm identity and work authorization.
Direct pay to IRS: Free electronic payment tool for individuals paying quarterly estimates, balances due, or amended-return balances.
Roth IRA: Post-tax individual retirement account (outside payroll) with tax-free qualified withdrawals. Income limits apply.
Traditional IRA: Pre-tax individual retirement account with tax-deferred growth; withdrawals taxed as ordinary income in retirement.
Deferred compensation: Non-qualified plans (409A) that let executives postpone salary/bonus receipt to a later year for tax planning.
Fringe benefit: Any non-wage compensation — health insurance, transit passes, tuition assistance, employer HSA contributions — some are pre-tax.
Highly Compensated Employee: IRS classification (comp > $155,000 in 2026) that limits certain plan benefits under nondiscrimination testing.
Nondiscrimination testing: Annual tests on 401(k)/125 plans to ensure benefits don't disproportionately favor highly compensated employees.
True-up contribution: Extra employer 401(k) match at year-end to correct pay-period matching that under-funded the total.
EFTPS: Electronic Federal Tax Payment System — free federal tax payment service used by most employers for payroll deposits.
Common-law employee: IRS classification for workers whose duties, tools, and schedule are controlled by an employer (issued a W-2).
Independent contractor: Self-employed worker who controls how work is done. Receives 1099-NEC and pays self-employment tax.
Multi-state withholding: Payroll rules for employees working in more than one state — usually withheld based on where work is performed.
Reciprocity agreement: Deal between two states letting residents work in the other without owing tax there (e.g., NJ/PA).