Your Online Division Payout Report

It Documents All Expenses That Leave Your Division


Detailed Explanation of Your Division Payout Report

  • Examine a Sample Division Payout Report
    • Click this link to open the Sample Division Payout Report in a separate browser window.

    • Now you can toggle back and forth as we address each item in the Division Payout Report.

  • Upper Left Corner
    • Division
      The Division Manager's name is John Q Contractor      .

    • Report ID
      Each report has a unique serial number.

    • Report Date
      Date the report was generated.

    • Report Period
      This is the period during which expenses were paid. It is usually the interval since the last payroll.

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  • Upper Right Corner
    • Beginning Account Balance
      The beginning account balance of the Division Payout Report equals the ending account balance of the Division Revenues Report. Unless the Division Manager directs otherwise, the beginning account balance is the basis for calculating your gross wage.

    • Gross Wage
      Your division of P.A.C.E. is a profit center. You receive 100% of your division's net profit as taxable gross wage. Net profit is what remains in your division's account after paying all non-taxable division expenses minus any undisbursed reserves (e.g., you may want to carry a positive account balance in your division as a contingency fund).

      • In this example, John Q Contractor's division has earnings during the period of $15,190.

      • Non-taxable division expenses include the following:

        • The employer's (i.e., the division's) share of payroll taxes.

        • The employer's contribution to John Q Contractor's 401(k) retirement savings account.

        • The employer's reimbursement of out-of-pocket medical and business expenses to John Q Contractor.

        • The employer's cost of insurance premiums for John Q Contractor.

        • In all, the expenses paid by John Q Contractor's division during the period add up to $3,884.05.

      • John Q Contractor's taxable gross wage is $15,190.00 - $3,884.05 = $11,305.96. (Notice that rounding to two decimal places produced a 1¢ discrepency.)

    • Ending Account Balance
      The ending account balance on the Division Payout Report represents what is left in your division's account after total expenses and gross wage are paid out.

      The ending account balance is generally zero, unless the Division Manager specifies otherwise. In this example, John Q Contractor elected to have an ending account balance of $0.00.

    • Pie Chart
      The colorful pie chart shows that

      • John Q Contractor received 74% of his beginning account balance as taxable gross wage.

      • The employer's share of payroll taxes equals 10% of the beginning account balance.

      • Non-taxable forms of compensation (retirement fund contributions, reimbursed expenses, and health insurance premiums) represent 16% of the beginning account balance.

      • Total compensation (both taxable and non-taxable combined) equals 90% of the beginning account balance.

       

  • Notes

    • The notes section contains messages from your Division Administrator. In this example, the notes section announces that John Q Contractor's year-to-date wage has exceeded the California and federal unemployment tax cap.

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  • Taxes Details Box

    • All employers must pay payroll taxes. P.A.C.E. withholds and pays the actual amount owed to each agency. As a rule, payroll taxes are a percentage of gross wage. A few states also have excise taxes that are a percentage of the employer's gross revenues. Payroll taxes and excise taxes are listed separately on the Division Payout Report.

      For the purpose of this Sample Division Report, John Q Contractor lives and works in California. California does not have an excise tax on gross revenues, so there is no line item for state excise taxes in the Sample Division Report. The payroll taxes in the Sample Division Report are explained below.

    • FICA (Social Security)
      The federal payroll tax for Social Security is 12.4% of which one-half (6.2%) is paid by the employer (i.e., your division), and one-half is paid by the employee out of the employee's gross wages (your paycheck). There is a wage cap above which the Social Security tax drops to zero. In 2005 the annual wage cap for Social Security taxes is $90,000. Social Security taxes are paid to the IRS.

      Because of P.A.C.E.'s unique profit center business model, P.A.C.E. is able to pass the employer's share of wage cap savings on to you, the Division Manager, in the form of a higher gross wage.

      Temp agencies never pass the wage cap saving on to their contract employees. Instead they reap a significant windfall. For this reason temp agencies love highly compensated contractors on long contracts.

    • FICA (Medicare)
      The federal payroll tax for Medicare is 2.9%. As with Social Security taxes, one-half (1.45%) is paid by the employer (your division), and one-half is paid by the employee out of the employee's gross wages (your paycheck). There is no annual wage cap on Medicare taxes. Medicare taxes are paid to the IRS.

    • Federal Unemployment
      Federal unemployment tax is paid entirely by the employer (your division). The rate is 0.8% of gross wage, and there is an annual wage cap of $7,000, beyond which the tax rate is zero. Federal Unemployment taxes are paid to the IRS.

      0.08% of $7,000 is $56, so that is all that P.A.C.E. has deducted from John Q Contractor's division. Because the federal wage cap has now been exceeded, there will be no more federal unemployment tax deducted for the rest of the year.

    • State Unemployment
      State unemployment taxes vary from state to state, and so do the annual wage caps above which the tax rate is zero. Additionally the tax rate varies depending on the experience rating of each employer in each state. State unemployment taxes are paid to the state taxing authority in which the work is done.

      State unemployment tax is paid entirely by the employer (your division). The rate that P.A.C.E. pays for John Q Contractor who lives and works in California is 6.2 % of gross wage. The wage cap for state unemployment in California is the same as the federal wage cap, $7,000.

      6.2% of $7,000 is $434, so that is all that P.A.C.E. has deducted from John Q Contractor's division. Because the state wage cap has now been exceeded, there will be no more state unemployment tax deducted for the rest of the year.

      Beware of imitators that quote a "standard" unemployment tax rate. They could be padding their rate to create a hidden source of additional income. P.A.C.E. withholds and pays only the exact amount of unemployment tax owed to each state employment agency.

    • Workers Comp
      Employers must pay workers compensation premiums in every state where they process payroll. Some states manage their own workers compensation plans, while most states outsource to task to private insurance companies. Workers comp rates vary by state, industry, job title, and by experience rating.

      The workers comp rate for John Q Contractor is 1% of gross wage, or $113.06.

    • Taxes Total
      The total of all payroll taxes paid by John Q Contractor's division during this payroll is $1,467.97, or slightly less than 10% of the beginning account balance.

     

  • Reimbursable Details Box

    • Since the last payroll, John Q Contractor has submitted six items for reimbursement.

      • First he entered the items online in the secure Members Site.

      • Then he mailed the original receipts to P.A.C.E. for reconciliation by his Division Administrator.

      • In doing so, John Q Contractor has saved over $200 in unnecessary payroll taxes and income taxes.

       

  • Investments Details Box

    • Every division makes a "safe harbor" contribution equal to 3% of gross wage to the Division Manager's 401(k) retirement savings account. The safe harbor contribution makes it possible for all P.A.C.E. Division Managers to contribute tax-deferred dollars to their retirement account up to the IRS maximum limits for tax-qualified contribution plans. The limit for 2005 is $42,000 ($46,000 if 50+ years of age).

    • The investments details box shows a safe harbor contribution of $339.18 tax-deferred dollars to John Q Contractor's retirement account.

    • John Q Contractor's pay stub will show that he also made a tax-deferred contribution out of his payroll. John's division contributes approximately $2 (employer match) for every $1 that he contributes from payroll. In this example, the employer match is $1,291.65 tax-deferred dollars.

    • Counting his payroll contribution of approximately $600, John Q Contractor has contributed over $2,200 tax-deferred dollars (equals approximately 20% of gross wage) to his retirement savings plan. John is a smart contractor.

    •  

  • Insurance Details Box

    • Your division of P.A.C.E. pays 100% of your group insurance premiums for the following types of group insurance:

      • Health Insurance
      • Dental Insurance
      • Supplemental Life Insurance

    • The Sample Division Payout Report for John Q Contractor shows an Insurance Total of $345.00.

    • By purchasing group insurance through P.A.C.E., John Q Contractor is benefiting from more comprehensive insurance coverage than is generally available to individuals. Also, by purchasing his insurance with tax-free dollars he has saved over $150 in unnecessary payroll taxes and income taxes.

     

  • Wage-cap Windfall
    • Now let's proceed to a detailed explanation of how you can earn a significant wage-cap windfall every year.

    • Wage-cap Savings -- Unique to the P.A.C.E. Solo W-2™ business model.

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