What Are Taxable Wages?

February 3, 2015

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Background

Taxable wages are money earned by an employee that must have income tax withheld. This is in contrast to non-taxable wages, such as an expense reimbursement, that is not subject to income tax withholding.  See a full definition of Taxable Wages in our glossary.   For further reading about taxable wages, see our related articles:

How To Enter Taxable Wages in Patriot Software

When you enter Prior Payroll History or a Payroll Update for an employee, it is important to enter “Taxable Wages” for employee or employer payroll taxes, so that the money will be added to any limits that apply (see limits below), and W-2s and payroll tax filings are accurate.

Both screens include fields for entering Taxable Wages for each type of tax. If you’re entering prior payroll history information, you should have a report of Taxable Wages for each type of tax for each employee from your former payroll provider. If you’re not sure what amounts to enter for Taxable Wages, here is a guideline:

Gross Pay

Gross Pay is the total amount of wages paid to your employee before non-taxable pay, such as expense or mileage reimbursements, or non-taxable deductions are taken into account.

Here’s an example:

Regular Pay $500.00
Overtime Pay   $25.00
Expense Reimbursements   $30.00
Gross Pay $525.00 (reimbursement not included)

Social Security Subject Wages = Gross Pay minus Section 125 pretax deductions, up to the Social Security wage base limit.

Medicare Subject Wages = Social Security Subject Wages, except there is no wage base limit.

Federal Subject Wages = Gross Pay, minus Section 125 pretax deductions, minus 401k/403b/457 contributions.

State Tax and Local Tax Subject Wages depend on whether your state and/or local taxes include Section 125 pretax deductions and 401k/403b/457 contributions.  Check with your state’s taxation department to confirm.

SUTA Subject Wages depend on your state. Check with your state’s taxation department to confirm the SUTA wage limit, or see our State Tax Account Help Page with specific state information.

FUTA Subject Wages = Medicare Wages up to the first $7,000.00 of the employee’s annual earnings.

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