Payroll

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Payroll refers to the body of taxes and laws regarding paying of employees, which includes owner-operators of certain types of businesses. If you have a regular job (you gave some a W-4, you get a regular check, and a W-2 at the end of the year), you know that you are “on payroll.” If you run your own business, some structures permit you to divide your compensation between “wages” (payroll) and “profits” (non-payroll). Other structures make all your owner-operator income into “self employment income.”

Most employee retirement accounts are tied to wages (payroll) or self employment income, so higher amounts increase your limits. However, all wages (payroll or self employment) are subject to Payroll Taxes, such as Medicare and Social Security.

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