Global HR Glossary

What are Taxable Wages? 

Taxable wages refer to the portion of an employee's earnings that are subject to income taxes. These wages include salaries, hourly pay, bonuses, and certain fringe benefits, making them critical for tax calculations. The concept of taxable wages helps define the baseline on which payroll taxes are computed and includes not only regular earnings but also special compensations like overtime, bonuses, and some allowances.

Calculation and Considerations

To determine taxable wages, begin with the employee's gross income and subtract any pre-tax deductions, which can include retirement plan contributions, health insurance premiums, and flexible spending account allocations.

The result is the employee’s taxable income, which will be used to calculate federal and state income taxes as well as Social Security and Medicare contributions. It's crucial to stay updated with the IRS guidelines as they adjust thresholds and regulations that can affect what constitutes taxable wages.

Exclusions from Taxable Wages

Certain types of remuneration are excluded from taxable wages under IRS rules, such as employer contributions to health insurance and retirement accounts, certain educational assistance benefits, and dependent care assistance under specific limits.