Everything about Taxable Wages totally explained
In
payroll, the sum of all earnings for an employee that are eligible for a particular type of
tax are considered
Taxable Wages with respect to that 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, FUTA Tax, which stands for the Federal Unemployment Tax Act, in the
United States, currently (in
2004) has a taxable wage limit of 7000
dollars. As described on the form which records information for this tax paid by
employers,
IRS form 940, only the first 7000 dollars of wages earned by each employee can be considered for the FUTA tax.
| Name | Wages | Taxable Wages |
| Joe Spittle | 8500 | 7000 |
| Jeff Wrench | 4000 | 4000 |
| Jane Lip | 500 | 500 |
| Erica Derg | 4500 | 4500 |
| Total Taxable Wages: | 16000 |
As you can see in this example, Joe Spittle earns 8500. Since this is higher than the limit of FUTA for taxable wages, which is 7000, the FUTA tax calculated for Joe can't be calculated against any more than the limit of 7000.
Further Information
Get more info on 'Taxable Wages'.
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