How are taxable wages calculated for employees?
Which earnings are excluded from taxable wages?
Taxable Wages
Taxable wages are the portion of an employee's total compensation that is subject to federal, state, and local income taxes. This includes regular salary, hourly wages, bonuses, commissions, and some fringe benefits that employees receive from their employers.
How are taxable wages calculated for employees?
To calculate taxable wages, begin with the employee’s gross pay. Then subtract any pre-tax deductions such as contributions to a 401K, retirement plan, health insurance premiums, flexible spending accounts (FSAs), and other eligible pre-tax benefits. The amount that remains is the employee’s taxable income, which is used to determine the federal, state, and local income taxes that must be withheld from their paycheck.
Which earnings are excluded from taxable wages?
Certain types of compensation are not considered taxable wages. These typically include employer-paid health insurance premiums, life insurance coverage up to $50,000, qualified transportation benefits, and contributions to health savings accounts (HSAs). Additionally, some fringe benefits, such as employee discounts and qualified meals provided by the employer, may be excluded under specific conditions.
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