ABCO Payroll Services®

By Roger Reynolds

• Did you ever wonder how your paychecks are calculated each week?
• Do your employees ask you questions about their checks that you don't necessarily know the answer to?
• Do you know what "OASDI" stands for?
• Why is a reimbursement under the Deduction field?

Gross Wages

Gross wages are the combination of all monies paid to an employee such as hourly wages, salary, tips, and allowances.

Taxes

There are specific taxes paid by the employee and employer.

Employee	Employer
Federal Income Tax Withholding
FICA OASDI 6.2%	FICA OASDI (Social Security) 6.2%
FICA Medicare 1.45%	FICA Medicare 1.45%
	FUTA 0.8% on first 7,000
	SUTA % varies on first 7,000 in Florida
	Workers Comp Insurance

 

Federal income taxes are paid on taxable earnings. The rate is determined by what the employee claims on his or her Form W-4. This is not matched by the employer. This figure can be lowered by pre-tax deductions (benefits covered under a Section 125 Plan, also not subject to FICA taxes) and/or tax-deferred deductions (benefits such as a Simple IRA or 401K which have no effect on FICA taxes).

Social Security is paid at a rate of 6.2%, paid up to the cut-off for gross wages each year, currently $102,500 ($106,800 in 2009). This amount is matched by the employer.

Medicare is paid at the rate of 1.45% for all taxable earnings with no cut-off. This amount is also matched by the employer.

FUTA (Federal Unemployment Taxes) are paid by the employer, currently at a rate of .8% on the first $7,000 of each employee’s wages in each calendar year.

SUTA (State Unemployment Taxes) are also paid by the employer. For new businesses, the rate is 2.7% for the first $7,000 of employee wages each year. After 10 quarters, a Florida business will be re-evaluated for a new rate based on its history of wages and claims paid during that time.

Reimbursements

Another common question is about the reason for reimbursements being shown in the Deductions area of the pay stub. Reimbursements must be shown as deductions so that they are not included in earnings on the employee’s W-2. Reimbursements are basically paying an employee back for costs incurred using their own post-tax dollars. Keep in mind that in the event of an audit, you will be required to produce records of mileage logs and receipts.

As always, if you have any questions about a paycheck, please don't hesitate to give us a call. We hope that being able to easily answer questions and concerns over employee paychecks will make for a happy employee and, in turn, a happy client.