Taxable Wages, in payroll, is the sum of all earnings by an employee that are eligible for a particular type of 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, the Federal Unemployment Tax Act (FUTA) tax in the United States had, in 2004, a taxable wage limit of $7,000. As described on the form which records information for this tax paid by employers, U.S. Internal Revenue Service form 940, only the first $7,000 of wages earned by each employee can be considered for the FUTA tax.
Name
Wages
Taxable Wages
Joe Spittle
8,500
7,000
Jeff Wrench
4,000
4,000
Jane Lip
500
500
Erica Derg
4,500
4,500
Total Taxable Wages:
16,000
In this example, Joe Spittle earns $8500. Since this is higher than the limit of FUTA for taxable wages, which is $7,000, the FUTA tax calculated for Joe cannot be calculated against any more than the limit of $7,000.
