How Wage Basis Rules Affect Taxability for the US
The payroll process uses wage basis rules to control the taxability of employee earnings. There are predefined rules at the federal and state levels.
The following describes how the various element classifications use the wage basis rules.
Imputed Earnings
Here's some examples of how the payroll process applies FIT to Imputed Earnings classifications.
|
Wage basis rule |
What it does |
For example |
|---|---|---|
|
Taxable and Withhold |
Marked as subject to federal taxes and withheld by the payroll process. |
Cash Tips Reported |
|
Taxable and Not Withhold |
Marked as subject to federal taxes but not withheld. |
Group Term Life |
|
Nontaxable |
Nontaxable classifications don't appear in the table. |
Domestic Partner Dependent As this imputed earning isn't taxable for FIT, it isn't included in the table. |
Pretax Deductions
Here's some examples of default wage basis rules for Medicare tax.
|
Wage basis rule |
What it does |
For example |
|---|---|---|
|
Taxable and Withhold |
Marked as subject to Medicare tax and withheld by the payroll process. |
Deferred Compensation 401k |
|
Nontaxable |
Nontaxable classifications don't appear in the table. |
Health Care 125 As this pretax deduction isn't taxable for Medicare, it isn't included in the table. |
Supplemental Earnings
Here's some examples of how the payroll process applies Puerto Rico regional taxes to Supplemental Earnings classifications.
|
Wage basis rule |
What it does |
For example |
|---|---|---|
|
Taxable and Withhold |
Marked as subject to state tax and withheld by the payroll process. |
Bonus |
|
Taxable and Not Withhold |
Marked as subject to state tax but not withheld. |
Deferred Compensation Distribution |
|
Nontaxable |
Nontaxable classifications don't appear in the table. |
Pensions and Annuities As this supplemental earning isn't taxable for Puerto Rico, it isn't included in the table. |