Payroll Glossary — 44+ Terms Explained

All payroll terms

• FICA — Federal Insurance Contributions Act — the Social Security and Medicare tax on your paycheck.
• Social Security Tax — The 6.2% payroll tax that funds federal retirement and disability benefits (OASDI).
• Medicare Tax — The 1.45% payroll tax that funds federal healthcare for seniors and disabled persons.
• Federal Income Tax (FIT) — Tax withheld from your paycheck based on your W-4 elections and IRS tax brackets.
• State Income Tax (SIT) — Income tax levied by your state of residence, ranging from 0% to 13.3% depending on the state.
• Local Income Tax — City or county income tax levied in some jurisdictions (e.g., NYC, Philadelphia, Detroit).
• Self-Employment Tax (SE Tax) — The combined 15.3% Social Security and Medicare tax paid by self-employed individuals.
• Additional Medicare Tax — A 0.9% surtax on wages exceeding $200,000 (single) for high earners.
• Gross Pay — Your total earnings before any deductions — the "big number" on your paystub.
• Net Pay (Take-Home Pay) — The amount you actually receive after all deductions — what hits your bank account.
• Hourly Rate — The amount you earn per hour of work. The federal minimum is $7.25/hr.
• Overtime Pay (OT) — Pay at 1.5x your regular rate for hours worked beyond 40 per week (FLSA requirement).
• Salary — A fixed annual compensation divided equally across pay periods, regardless of hours worked.
• Year-to-Date (YTD) — Running total of earnings and deductions from January 1st through the current pay period.
• Commission — Earnings based on a percentage of sales you generate, common in sales roles.
• Bonus — A one-time or periodic additional payment, often taxed at a flat 22% federal supplemental rate.
• 401(k) Contribution — Pre-tax retirement savings deducted from your paycheck, reducing your taxable income.
• Health Insurance Premium — Your share of the monthly health insurance cost, usually deducted pre-tax.
• Health Savings Account (HSA) — A triple-tax-advantaged savings account for medical expenses with a high-deductible health plan.
• Flexible Spending Account (FSA) — Pre-tax account for medical or dependent care expenses — use it or lose it.
• Wage Garnishment — Court-ordered deduction from your paycheck to pay debts like child support, student loans, or tax liens.
• Pay Period — The recurring time frame for which employees are paid (weekly, biweekly, semi-monthly, monthly).
• Pay Date (Check Date) — The date you actually receive your paycheck, usually 3-7 days after the pay period ends.
• Direct Deposit — Electronic transfer of your paycheck directly into your bank account.
• Exempt Employee — A salaried worker not eligible for overtime pay under FLSA (must meet salary and duties tests).
• Non-Exempt Employee — A worker who IS eligible for overtime pay (time-and-a-half over 40 hours/week).
• Form W-4 — The IRS form you fill out when hired to tell your employer how much federal tax to withhold.
• Form W-2 — Annual tax statement from your employer showing total wages and taxes withheld for the year.
• Form 1099-NEC — Tax form generally used to report $2,000 or more of 2026 nonemployee compensation.
• Form I-9 — Employment eligibility verification form required for all US hires within 3 days of start.
• Employer Match — The amount your employer contributes to your 401(k) matching your own contributions — free money.
• Paid Time Off (PTO) — Bank of days off that combines vacation, sick, and personal time into one bucket.
• COBRA — Law allowing you to keep your employer health insurance for 18 months after leaving (at full cost).
• Fair Labor Standards Act (FLSA) — The federal law that establishes minimum wage, overtime pay, and child labor standards.
• Minimum Wage — The lowest hourly rate an employer can legally pay — $7.25 federal, but higher in most states.
• Employer Identification Number (EIN) — A 9-digit number the IRS assigns to businesses for tax identification — like an SSN for companies.
• State Disability Insurance (SDI) — State-mandated insurance for short-term disabilities — applies in CA, NY, NJ, RI, and HI.
• State Unemployment Tax (SUTA/SUI) — Employer-paid tax that funds state unemployment benefits — does NOT appear as an employee deduction.
• Federal Unemployment Tax (FUTA) — A 6.0% federal tax on the first $7,000 of wages per employee — paid entirely by the employer.
• Pre-Tax Deduction — A deduction taken from your paycheck BEFORE taxes are calculated, reducing your taxable income.
• After-Tax (Post-Tax) Deduction — A deduction taken AFTER taxes — like Roth 401(k) contributions, union dues, or garnishments.
• Imputed Income — The taxable value of non-cash benefits your employer provides (e.g., group life insurance over $50K).
• Per Diem — A daily allowance for travel expenses (lodging, meals) — usually NOT taxable if within GSA rates.
• Shift Differential — Extra pay (usually $1-$5/hr more) for working undesirable shifts like nights, weekends, or holidays.