Payroll Services Glossary

125(k) Plan: a Flex or Cafeteria Plan in which employees have money deducted from their wages to fund certain benefit plans. Premium payments are usually taken on a pre-tax basis, reducing the employee’s federal, Social Security, Medicare and state taxes.

401(k) Plan: a cash-deferred plan that allows employees to authorize their employer to invest their pre-tax earnings in a retirement plan. The employee's contributions and any earnings on them are not subject to federal income tax until they are withdrawn.

403(k) Annuity: a mutual fund that provides retirement income for public school employees and some tax exempt organizations.

Advance Earned Income Credit (AEIC): is the payment of earned income credit during the year to employees who expect to be eligible for the credit; employers make the payments out of federal income, Social Security and Medicare taxes withheld from the employees’ wages.

Annual Wage Reporting (AWR): is the Social Security Administration’s system of recording wages reported annually by employers.

Automated Clearing House (ACH): when a private financial institution or a Federal Reserve Bank acts as a clearinghouse for direct deposit transactions. Entries are transmitted by the Automated Clearing House under the rules of the association.

Child support withholding: amount deducted from an employee’s wages to satisfy a court order for child support. The employer is responsible for withholding the amounts and paying them over to the party named in the withholding order.

Fair Labor Standards Act (FLSA): regulates minimum wage, overtime pay, and child labor laws for employers and employees covered by the law.

Federal Employer Identification Number (FEIN): is a number assigned to taxpayers and businesses by the federal government. This number is used for all tax transactions.

Internal Revenue Code (IRC): Federal tax laws.

Liabilities: outstanding business debts.

Medicare: a federal insurance plan for persons 65 or older, and some disabled individuals. Funded through the FICA; employee and employer pay matching amounts with no annual wage limit.

Social Security: insurance withholding for retirement, disability and survivor benefits.

Taxpayer Identification Number (TIN): a Social Security number or employer identification number (EIN) that serves as the taxpayer’s account number with the Internal Revenue Service (IRS) and Social Security Administration, (SSA).

Withholding: deducting a portion of an employees wages for taxes, garnishments or other deductions, such as health insurance and union dues; these amounts are then paid to the government agency or other party to whom they are owed.