Definitions

taxable

Taxable wages

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.

NameWagesTaxable Wages
Joe Spittle85007000
Jeff Wrench40004000
Jane Lip500500
Erica Derg45004500
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 cannot be calculated against any more than the limit of 7000.

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