Taxable wages
Taxable Wages, in payroll, is the sum of all earnings by an employee that are eligible for a particular type of tax. Each tax is different and has different regulations about limits to the amount of wages that can be considered taxable with respect to that tax.
Example
A common example, the Federal Unemployment Tax Act (FUTA) tax in the United States had, in 2004, a taxable wage limit of $7,000. As described on the form which records information for this tax paid by employers, U.S. Internal Revenue Service form 940, only the first $7,000 of wages earned by each employee can be considered for the FUTA tax.
| Name | Wages | Taxable Wages |
|---|---|---|
| Joe Spittle | 8,500 | 7,000 |
| Jeff Wrench | 4,000 | 4,000 |
| Jane Lip | 500 | 500 |
| Erica Derg | 4,500 | 4,500 |
| Total Taxable Wages: | 16,000 | |
In this example, Joe Spittle earns $8500. Since this is higher than the limit of FUTA for taxable wages, which is $7,000, the FUTA tax calculated for Joe cannot be calculated against any more than the limit of $7,000.
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