When adding or editing a money code in a payroll, click the “taxable” box to indicate if this money paid should be included in taxable income, or if it’s non-taxable income. If the money is not taxable, uncheck this box.
Examples of taxable income are:
- Regular Earnings
- Vacation Payout
- Severance Pay
- Back Pay
- Sick Pay, when the employee pays for a sick leave insurance policy with pre-tax dollars
Examples of non-taxable income are:
- Expense reimbursement
- Mileage reimbursement
- Tuition Reimbursement up to IRS Limits
- Sick Pay, when the employee pays for a sick leave insurance policy with after-tax dollars
See IRS Publication 15 – Employer’s Tax Guide for more reference on which income types should be taxed.