Questions and Answers
What is a length of time used by an employer to calculate the amount of an employee's earnings?
What does Gross Earnings refer to?
Amount of pay received before any deductions.
The Fair Labor Standards Act is a law that establishes the minimum hourly rate and regulates working hours.
True
What is used to determine whether an employer must follow the Fair Labor Standards Act?
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What is a work week?
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What does Form W-4 determine?
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What do allowances refer to in relation to tax?
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What is FIT withholding?
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What do Circular E publications provide?
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What does SUTA stand for?
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Match the following tax terms with their descriptions:
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What is net pay?
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What does a payroll register record?
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What summarizes the total amount of wages paid and deductions for an individual employee?
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What are taxable earnings?
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What is the significance of payroll records being timely?
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Study Notes
Payroll Definitions and Concepts
- Payroll Period: Duration for calculating employee earnings; can be daily, weekly, biweekly, semimonthly, monthly, quarterly, or annual.
- Gross Earnings: Total pay received before any deductions, reflecting the amount earned by the employee.
- Fair Labor Standards Act: Federal law regulating minimum wage and overtime pay; mandates time-and-a-half for hours worked beyond a set threshold.
- Interstate Commerce: Legal concept determining if Fair Labor Standards Act applies based on business operations across state lines.
- Work Week: Defined as a seven-day period for calculating overtime; flexible start day but concludes after seven days.
Forms and Allowances
- Form W-4: Certificate used by employees to indicate allowances and marital status, guiding federal income tax withholding from paychecks; relevant for interstate businesses.
- Allowances: Dependents claimed by the employee, reducing taxable income and overall tax liability.
- Federal Income Tax Withholding: Amount deducted from employee's gross pay based on earnings, allowances, pay period, and marital status from W-4.
- Allowances (Exemptions): Specific amounts of income considered non-taxable for withholding purposes.
Taxation and Financial Reporting
- Circular E: IRS publication featuring tax tables for income tax calculations.
- Wage Bracket Table: Charts in Circular E aiding deduction calculations based on earnings and W-4 data.
- State Income Tax Withholding: Similar to federal withholding but based on state regulations and may vary from the W-4 guidelines.
Contributions and Earnings
- FICA: Federal taxes imposed on employer and employee for Social Security (OASDI, capped) and Medicare (no cap) since the 1935 Act.
- Calendar Year: One-year period from January 1 to December 31 used for payroll purposes despite employer fiscal year.
- Taxable Earnings: Portion of earnings subject to taxation; specifics often detailed in individual situations.
- Medical Insurance: Healthcare coverage with premiums deducted from employee pay, treated as a non-tax exemption.
Net Earnings
- Net Pay: The take-home pay after all deductions from gross earnings, representing actual amounts employees receive.
- Payroll Register: Multi-column form to document payroll data systematically.
- Individual Employee Earnings Record: Document summarizing wages and deductions for the year, assisting in financial reporting.
Unemployment Tax
- FUTA: Federal Unemployment Tax Act tax paid by employers with an earnings cap.
- SUTA: State Unemployment Tax Act tax, also employer-paid, with its own earnings cap.
Payment Responsibilities
- Employee's Pay Components: Includes federal and state income tax, FICA (OASDI and Medicare), and state disability payments.
- Employer's Pay Components: Includes FICA contributions, FUTA, and SUTA obligations.
- Timeliness of Payroll: Critical for satisfying both employee and government tax obligations.
- Payroll Record Summary: Captures gross earnings, withholdings, net pay, and cumulative earnings data.
- Withholding: Deductions from gross earnings that affect net pay, representing the difference between total earnings and take-home amounts.
Studying That Suits You
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Description
Test your knowledge on the payroll process with this flashcard quiz based on Accounting Chapter 7. You'll learn important terms like pay periods, gross earnings, and the Fair Labor Standards Act. Perfect for students looking to reinforce their understanding of payroll concepts.