Payroll Glossary — 44+ Terms Explained

All payroll terms

• FICA — The law behind two payroll taxes on your stub: 6.2% Social Security and 1.45% Medicare, deducted as you are paid and matched by your employer.
• Social Security Tax — 6.2% of your wages, charged only up to an annual wage base — $184,500 in 2026 — which is why the line stops for high earners late in the year.
• Medicare Tax — 1.45% of every dollar you earn, with no wage cap, plus a 0.9% surtax once your wages pass $200,000 in a calendar year.
• Federal Income Tax (FIT) — A running prepayment of your federal tax bill, calculated from your W-4 and your pay frequency — an estimate, not the tax itself.
• State Income Tax (SIT) — Income tax withheld for a state government — driven by where you work and where you live, and absent entirely in nine states.
• Local Income Tax — A city, county or school-district tax withheld on top of state tax — often flat, and often owed on where you work as well as where you live.
• Self-Employment Tax (SE Tax) — The 15.3% Social Security and Medicare tax you pay on your own net earnings when no employer is withholding half of it for you.
• Additional Medicare Tax — A 0.9% extra Medicare tax, with no employer match, that payroll must start withholding once your wages pass $200,000 in a calendar year.
• Gross Pay — Everything you earned in the pay period before a single deduction - and usually not the same number as the taxable wages on your W-2.
• Net Pay (Take-Home Pay) — What is left after every tax and deduction comes out of gross pay - the bottom-line figure that should match your deposit.
• Hourly Rate — The dollars-per-hour figure your regular hours are multiplied by - which is not always the rate your overtime has to be based on.
• Overtime Pay (OT) — Pay of at least 1.5x your regular rate for hours over 40 in a workweek - and the regular rate is often higher than your base rate.
• Salary — A fixed amount of pay per period, set by the year rather than by hours — and not, by itself, a reason you cannot be owed overtime.
• Year-to-Date (YTD) — The running total of a pay stub line from January 1 through this check — the column that reconciles to your W-2, and usually won't match Box 1.
• Commission — Pay earned as a share of what you sell — ordinary wages, often withheld at the flat 22% supplemental rate, and counted in your overtime rate.
• Bonus — Extra pay on top of regular wages, usually withheld at the flat 22% federal supplemental rate — a withholding rule, not a bonus tax bracket.
• 401(k) Contribution — The share of your pay you send to an employer retirement plan before income tax — it lowers taxable wages, but not Social Security and Medicare.
• Health Insurance Premium — Your share of the employer plan premium, taken each pay period — and if it runs through a Section 125 plan, taken before income tax and FICA.
• Health Savings Account (HSA) — A bank account you own for medical costs, funded by pre-tax payroll deductions, open only to people on a qualifying high-deductible health plan.
• Flexible Spending Account (FSA) — A pre-tax account for medical or dependent care costs that is set once a year and generally forfeited if unspent.
• Wage Garnishment — A court or agency order forcing your employer to withhold part of your pay for a debt, capped by federal law at a percentage of disposable earnings.
• Pay Period — The block of dates a paycheck covers, shown on the stub as a start and end date - not the same thing as the workweek or the pay date.
• Pay Date (Check Date) — The day wages are actually paid - the date that decides which tax year the money belongs to, not the date the work was done.
• Direct Deposit — An electronic transfer of your net pay into a bank account, which turns your paystub into a non-negotiable advice rather than a cashable check.
• 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 give your employer that sets your federal income tax withholding — since 2020 it uses dollar amounts, not allowances.
• Form W-2 — Your employer's year-end report of what it paid you and what it withheld — the boxes, not your salary, are what the IRS matches to your return.
• Form 1099-NEC — The form a business files for a contractor it paid $2,000 or more in 2026 — gross amounts, nothing withheld, and no pay stub behind it.
• Form I-9 — The federal form documenting your identity and permission to work in the US — it takes nothing from your pay and never goes to the IRS.
• Employer Match — Money your employer adds to your 401(k) because you contributed. It shows on your stub but is never subtracted from your take-home pay.
• Paid Time Off (PTO) — A bank of paid hours covering vacation, sick and personal days. No federal law requires it, and your stub shows hours, not dollars.
• COBRA — Your right to keep the same employer health plan after leaving — up to 18 months, at up to 102% of the full premium you never saw.
• Fair Labor Standards Act (FLSA) — The federal wage law behind the $7.25 minimum, the 1.5x overtime rule past 40 hours, and the exempt or non-exempt label on your stub.
• Minimum Wage — The lowest hourly rate an employer may legally pay. Federal is $7.25; where a state or city sets a higher rate, the higher rate wins.
• Employer Identification Number (EIN) — Your employer's nine-digit federal tax ID, written XX-XXXXXXX. It identifies the company, not you, and must match Box b of your W-2.
• State Disability Insurance (SDI) — State-mandated insurance for short-term disabilities — applies in CA, NY, NJ, RI, and HI.
• State Unemployment Tax (SUTA/SUI) — The state tax that funds unemployment benefits — employer-paid in 47 states, so for most workers it is never actually deducted from the paycheck.
• Federal Unemployment Tax (FUTA) — A 6.0% federal tax on the first $7,000 of each employee's wages, paid entirely by the employer and never withheld from your paycheck.
• Pre-Tax Deduction — A deduction taken before tax is calculated — but it does not lower every tax, and which ones it lowers depends on the benefit.
• After-Tax (Post-Tax) Deduction — A deduction taken after tax has already been calculated, so it lowers your take-home pay without lowering the wages you were taxed on.
• Imputed Income — The taxable value of a non-cash benefit from your employer — it raises the wages you are taxed on without raising your bank deposit.
• Per Diem — A flat daily travel allowance for lodging, meals and incidentals — untaxed and outside gross pay while it stays within the federal rate.
• Shift Differential — Extra hourly pay for working nights, evenings or weekends — never required by federal law, but it must be counted in your overtime rate.