Difference between Taxable Wage Base and Taxed Wage Base on Payroll Adjustment Transactions

One method of correcting payroll entries is through Payroll Adjustments.  Two common adjustments are correction of the Taxable Wage Base and Taxed Wage Base amounts.

 

The Taxable Wage Base is the subject wage.

 

The Taxed Wage Base is what was actually taxed. The taxed wage base will have a cap based on the tax limits such as Unemployment Insurance (UI).

Note: If user has an employee that has already exceeded their UI wage limit and an adjustment to reduce his taxable wages needs to be done, user reduces the tax and the Taxable wage base.

If user needs to reduce an employee's wage that has not met the wage limit yet, user decreases both taxable and taxed wage base along with the tax.

To illustrate:
An employee gets $1,000 on a particular paycheck, on the same paycheck there is a pre-tax deduction of 200.
The deduction of 200 is pre-tax for purposes of Social Security, Medicare and Federal Unemployment.

a.       If this is entered as an adjustment, the taxable and taxed wage base for Social Security, Medicare and Federal Unemployment Tax will be 800 (1,000 – 200).

b.      If maximum wage base limit has been reached for a tax item, any earning on top of the maximum wage base limit is "taxable" but is not "taxed".

c.       In the above example, if prior to this paycheck the total earnings of the employee is $6,500 and the annual wage base limit is 7,000, only $500 of the $800 taxable earning is taxed for purposes of Unemployment.  As a payroll adjustment the taxable portion will be $800 and the taxed portion is $500 and the tax amount is $500 multiplied by the Unemployment rate.

 

Disclaimer: To ensure compliance with requirements imposed by the IRS, NetSuite informs you that any U.S. federal/state tax advice contained in this article, unless otherwise specifically stated, was not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any matters addressed herein.
These materials do not constitute tax, legal, or accounting advice and neither NetSuite, nor its agents, employees, or representatives are in the business of offering such advice. Please consult your tax, legal, and accounting advisors for tax, legal, or accounting advice.