Do you get confused by the many acronyms used for describing payroll functions? Here are most of the more prevalent and what they mean –
EIN- Employer Identification Number which is issued by the IRS upon request. This should be issued for every company, but is mandatory for any company with employees.
SSN- Employee’s Social Security Number which is issued to any employee who is legally eligible to work in the United States.
W4- The form filled out by a new employee showing the employee’s name, address, social security number and the marital status of the employee as well as the number of dependents he/she wishes to have their FIT based on. This form is kept on file by the company.
W2- The form an employer issues to every employee at the end of each calendar year or if the employee leaves during the current year at the end of their employment. This form shows the company’s name, address and EIN number as well as the employee’s name, address and SSN. It also lists the wages earned that are subject to FIT, FICA and state withholding and the amounts withheld. This form may also include such items as deferred deductions such as employee contributions to pension or retirement plans and employee health benefits withholdings as well as other withholding or income items that affect the employee’s taxable wages. This form consists of several copies, one for the Social Security Administration, one for your state, employee copies for Federal, state and if appropriate local government filings and copies to be kept by the issuing company and the employee.
FIT- Federal Income Tax. This refers to the Federal Income Tax withheld from an employee’s paycheck. This tax is based on rates set by the IRS and is affected by an employee’s marital status and number of dependents.
FICA- Federal Insurance Contributions Act which includes Social Security and Medicare tax withholdings from an employee’s paycheck. The Social Security portion is applied to 100% of an employee’s wages, however the Medicare portion is applied only to the amount of wages set and changed yearly by the IRS. The employer is required to match the total amount of FICA taxes withheld from each employee.
SIT- State Income Tax which refers to your state income tax withholding from an employee’s paycheck. These withholdings are based on rates set by each individual state. Some states do not have income taxes for individuals.
SUTA- State Unemployment Tax Act. This is a tax that the employer pays and is based on your state’s rate per a stated amount of wages per employee.
FUTA- Federal Unemployment Tax Act. This is an employer paid tax that is based on a stated wage per employee and the rate may be adjusted based on the amount contributed to your state fund.
941- A Federal form filed quarterly to report wages paid, FIT and FICA wages withheld as well as the employer’s contributions to FICA, and the dollar amount of deposits made and the dates these deposits were made.
940- A Federal form filed yearly to report wages paid, amount and date of state SUTA contributions made and any FUTA deposits made during the calendar year.
Please refer to the IRS and your state’s web sites or publications for Federal, state and local rules and regulations to determine the current rates in effect, when and how to make your deposits and what reports are required and their due dates.
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