Payroll is a world of acronyms. Have you ever wondered why there have to be multiple acronyms for one tax code? We have!
Most everyone knows we have Federal Income Tax withheld from employee pay checks so we abbreviate it as FIT, FT, and Fed.
Most employers are also required to withhold Social Security and Medicare taxes from employees as well. Now, this one can get tricky. Federal Insurance Contribution Act or FICA is the act that stabilized Social Security and Medicare tax regulations. So, why do we use FICA to mean the Social Security portion of the tax? It’s no wonder people do not understand what we are talking about! Then, we interchange FICA and OASDI (Old Age Survivors Disability Insurance) for Social Security.
On the Medicare side, we use MEDI, HI (Health Insurance), and FICA-HI. Oh, let’s throw in one more – MQGE. What is that? It is Medicare Qualified for Government Employees. Well, it’s a long story, but let’s simplify. Way back in the day, prior to 1983, federal employees did not have Medicare withheld from their pay; therefore they did not qualify for health insurance. The Tax Equity & Fiscal Responsibility Act of 1982, which took effect in 1983, created the MQGE tax to ensure these employees qualified for HI or Health Insurance. This tax is identical to Medicare, but requires a little difference in reporting.
We have one more federal acronym for today, and that is FUTA or Federal Unemployment Tax Act. This tax is paid by the employer to the federal government to help fund unemployment compensation for separated employees. Other acronyms used are FUT and FU. Getting confused yet?
State taxes are in abundance these days. State income tax withheld from employees in states with an income tax is often referred to as SIT or ST. Other employee-based taxes are:
- SDI or State Disability Insurance
- SWC or State Workers Compensation
- SHI or State Health Insurance
- FLI or Family Leave Insurance
Employers are required to pay a percentage of employee wages to the state to fund unemployment compensation for separated employees. This tax, State Unemployment Tax, is also referred to as SUTA, SUI, and SU.
Finally, we have the Local Income Taxes or LIT or LT. But wait, they break them down even further to School Districts (SD), Municipalities, Transit, Occupational License Fees (OLF), and more.
Did you get all of that?