Payroll & Tax Glossary

Your total gross income minus specific deductions allowed by the IRS, such as student loan interest and IRA contributions. AGI is the starting point for calculating your federal income tax.

A deduction taken from an employee's paycheck after all federal, state, and FICA taxes have been withheld. Examples include Roth 401(k) contributions and union dues. These do not reduce your taxable wages.

A withholding allowance (pre-2020 W-4) that reduced the amount of federal income tax withheld from your paycheck. The 2020 W-4 redesign replaced allowances with a dollar-based system.

The total amount an employee earns in one calendar year before any deductions or taxes. Divide by 26 for bi-weekly pay, 24 for semi-monthly, or 12 for monthly gross pay per period.

A pay schedule where employees receive 26 paychecks per year — one every two weeks. This is the most common pay frequency in the United States, used by approximately 36% of employees.

Supplemental wages paid in addition to regular salary. The IRS requires employers to withhold a flat 22% federal income tax on bonus payments up to $1,000,000 (37% above that threshold).

Consolidated Omnibus Budget Reconciliation Act. A federal law allowing employees who lose job-based health coverage to continue that coverage for up to 18–36 months by paying the full premium themselves.

A retirement plan where both the employer and employee make contributions. Examples include 401(k) plans where the employer may match a percentage of the employee's contribution.

An amount subtracted from an employee's gross pay. Deductions can be pre-tax (reducing taxable income) or post-tax (taken after taxes). Common examples include health insurance, 401(k), and garnishments.

A qualifying child or relative you can claim on your tax return, potentially reducing your tax liability through credits and deductions. Claiming a dependent on Form W-4 can reduce tax withholding.

The average rate at which your income is taxed — calculated by dividing your total tax liability by your total gross income. This is always lower than your marginal (top bracket) tax rate.

A unique 9-digit number assigned by the IRS to identify a business entity for tax purposes. Similar to a Social Security Number but for businesses.

An employee who is not subject to overtime pay requirements under the Fair Labor Standards Act (FLSA), typically because they earn a salary above a threshold and perform certain job duties.

When an employer contributes to an employee's retirement plan (like a 401(k)) based on the employee's own contributions, typically up to a percentage of salary. This is effectively free money.

The federal law requiring employers and employees to each pay 6.2% for Social Security and 1.45% for Medicare. Self-employed individuals pay the full 15.3% as self-employment tax.

Your tax filing category — Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Surviving Spouse. Filing status determines your tax brackets, standard deduction, and credits.

A tax system where all taxpayers pay the same percentage of their income regardless of how much they earn. Several US states use a flat income tax rate (e.g., Illinois at 4.95%).

A pre-tax benefit account used to pay for eligible medical, dental, or dependent care expenses. Contributions reduce your taxable income. Healthcare FSA limit is $3,400 for 2026; use-it-or-lose-it rules apply.

Your total earnings before any deductions or taxes are withheld. For hourly workers, gross pay = hourly rate × hours worked + overtime. For salaried workers, it's the agreed annual salary divided by pay periods.

A court-ordered deduction from an employee's paycheck to pay a debt, such as child support, student loans, or unpaid taxes. Federal law limits how much can be garnished per pay period.

A filing status for unmarried individuals who pay more than half the cost of maintaining a home for a qualifying person. Provides a higher standard deduction than Single status and more favorable brackets.

A tax-advantaged savings account for individuals enrolled in a High-Deductible Health Plan (HDHP). Contributions are pre-tax, growth is tax-free, and withdrawals for medical expenses are tax-free. 2026 limit: $4,400 (individual).

The amount an employee earns per hour of work. Non-exempt hourly employees must receive at least 1.5x their hourly rate for any hours worked beyond 40 in a workweek (overtime).

Tax imposed on individual or business earnings. The US federal income tax is progressive — higher incomes fall into higher marginal tax brackets. Most states also levy their own income tax.

A self-employed worker who provides services to clients but is not classified as an employee. Responsible for paying the full 15.3% self-employment tax (both employer and employee share of FICA).

The tax rate applied to each additional dollar of income within a specific bracket. In a progressive tax system, only the income within each bracket is taxed at that bracket's rate — not your entire income.

The 1.45% FICA tax component funding the Medicare health insurance program. Both employer and employee pay 1.45%. High earners (above $200K single / $250K married) pay an additional 0.9% Additional Medicare Tax.

A pay schedule where employees receive 12 paychecks per year. To calculate monthly gross pay from an annual salary, divide by 12.

The amount deposited to an employee's account after all taxes and deductions are subtracted from gross pay. Also called "take-home pay." Net Pay = Gross Pay − Pre-Tax Deductions − All Taxes − Post-Tax Deductions.

An employee covered by FLSA overtime provisions, entitled to 1.5x pay for hours over 40 per week. Most hourly workers are non-exempt; some salaried employees below the FLSA threshold also qualify.

Hours worked beyond 40 in a single workweek. Under FLSA, non-exempt employees must be paid at least 1.5x their regular hourly rate for overtime. Some states (like California) require daily overtime after 8 hours.

The recurring length of time for which employee wages are calculated. Common pay periods: Weekly (52/year), Bi-Weekly (26/year), Semi-Monthly (24/year), Monthly (12/year).

A document accompanying each paycheck detailing gross pay, all deductions (taxes, insurance, retirement), and net pay for the current period and year-to-date totals.

A deduction subtracted from gross pay before income and FICA taxes are calculated, reducing your taxable income. Examples: traditional 401(k), health insurance premiums, HSA/FSA contributions.

A post-tax retirement contribution made to a 401(k) plan. Unlike traditional 401(k) contributions, Roth contributions do not reduce your current taxable income, but qualified withdrawals in retirement are completely tax-free.

A pay schedule where employees receive 24 paychecks per year — typically on the 1st and 15th, or the 15th and last day of each month. Different from bi-weekly (26 paychecks/year).

The 6.2% FICA component funding the Social Security retirement and disability program. Applied only on wages up to the Social Security Wage Base ($184,500 for 2026). Both employer and employee each pay 6.2%.

The maximum amount of earnings subject to Social Security tax each year. For 2026 it is $184,500. Earnings above this cap are not subject to the 6.2% SS tax.

A fixed dollar amount that reduces your taxable income without requiring itemization. For 2026: $16,100 (Single), $32,200 (Married Filing Jointly), $24,150 (Head of Household). Adjusted annually for inflation.

Wages paid separately from regular salary, such as bonuses, commissions, overtime, and severance. These may be withheld at a flat 22% federal rate or aggregated with regular wages for withholding purposes.

See Net Pay. The actual amount an employee receives after all taxes and deductions. This is the amount deposited to your bank account on payday.

A range of income taxed at a specific rate in a progressive tax system. The US has 7 federal income tax brackets (10%, 12%, 22%, 24%, 32%, 35%, 37%). Moving into a higher bracket only affects income within that bracket.

The amount the employer deducts from each paycheck and sends to the IRS on your behalf. The W-4 form controls how much is withheld. Withholding too little means a tax bill; too much means a refund.

An annual tax form employers must send to employees by January 31, reporting their total wages earned and taxes withheld during the prior year. Used to file your federal and state income tax returns.

Employee's Withholding Certificate filled out when starting a new job or changing your tax situation. Controls how much federal income tax is withheld from each paycheck based on your filing status and adjustments.

A pay schedule where employees receive 52 paychecks per year — one every week. Common in hourly and construction industries. Weekly gross = Annual Salary ÷ 52.

Pre-2020 W-4 concept that reduced federal income tax withholding per allowance claimed. Replaced in 2020 with a dollar-based system on the redesigned W-4. Historical concept; still used in some state W-4 equivalents.

The cumulative totals of pay and deductions from January 1 through the most recent pay period. YTD figures appear on your pay stub and are used to track annual totals for taxes and retirement contributions.