Taxable Wage Base

What is Taxable Base Wage?

The taxable wage base is defined as the maximum earned income that employees are required to pay social security taxes on. Generally, the employee's gross wages will be equal to the taxable wage base. Typically, an employer will handle this calculation and withhold the exact amount of taxes, divided and taken out of each paycheck in equal or similar amounts. However, the employee is still ultimately responsible for reporting their taxes each year.

The taxes that are taken from the taxable base wage fund the Social Security payments to retired workers who are 65 years old and up as their retirement benefits.

How does the Taxable Base Wage work?

Currently, the Social Security tax rate is 12.4%. Half of that percentage (6.2%) is paid by the employer, where the employee is accountable for paying the other half of it. Self-employed individuals must pay the full amount.

Some varieties of compensation are exempted from taxable wage bases, which include:

• Payments to partners of a partnership
• Disabled worker wages
• Workers’ compensation benefits
• Compensation paid to family employees who are minors
• Life insurance coverage
• Business travel expenses
• Assistance for dependent care, education, retirement planning services
• Payments to certain non-employees
• Tips under $20 a month

Conclusion

Withholding taxes from employee wages while filing tax returns is a key function of any payroll and accounting service. Having a full understanding of the rules around taxes is absolutely essential for employers. It’s a major responsibility to manage employees and follow the requirements of withholding taxes from their wages. Any task that’s related to an employee’s compensation should be handled with care and acted upon quickly.

For additional information, see terms entitled Base Wage Rate, Deductions, Earnings, FICA, Gross Wages, and Pay Calculation.