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Definition
Taxable wage refers to the portion of an employee's earnings that is subject to taxes. In simple terms, it's the money an employee earns that the government uses to calculate how much tax they owe.
Example
In this example the employee’s earnings are $2,096.15. The SEP deduction is pre-tax for federal and state taxes. The employee pays taxes on 2,096.15 for social security, Medicare, and the local tax. However, employee is paying taxes on $1,781.73 for the federal and state.
What does this mean for Implementation?
We are unable to verify the accuracy of the clients' wage calculations for their tax returns, which creates additional work for the implementation team. As a result, we cannot ensure the correctness of the tax calculations. Should taxes be improperly withheld, the client may incur tax fees and penalties, for which HR Butler would be held financially responsible.
What’s the worst that can happen?
The employee and client setup, as well as tax configurations, may not be accurate. Should discrepancies arise, HR Butler would be held liable for any associated taxes, fees, and penalties, which could escalate quickly into significant amounts. Furthermore, our implementation team may need to invest extensive hours in attempting to resolve these issues, time that would be more effectively spent on other priorities.
How does it create more work?
In this example, implementation is provided with the taxable wage per company per month.
The client operates on a biweekly payroll schedule and has processed four payrolls. After entering all deductions, earnings, and taxes for each employee, the payroll summary’s month-to-date taxable wages did not align with the monthly figures provided by the client. The implementation specialist was unable to identify which employee’s data was incorrect across which payrolls. As a result, the implementation specialist had to manually adjust the taxability of various deductions for each employee and payroll to determine the correct alignment. After several hours of this process, we requested that the client sign a tax waiver acknowledging the potential inaccuracies due to missing or incomplete information. In this case, the client would be held responsible for any taxes, fees, and penalties incurred. Following this, the client disclosed that one employee works at a different location 60% of the time, which explained the discrepancy.
What does this have to do with me?
It is important to set the expectation that we require this information in order to proceed. Failure to provide the necessary details may result in delays, and a signed tax liability waiver will be required (which we can provide). The objective of this meeting is to equip you with the knowledge and tools needed to effectively communicate this requirement to the client.
What exactly is needed?
We require a report that outlines the employees' taxable wages for each paycheck. If the client is unable to provide this specific information, we can accept reports that show a summary of taxable wages, such as a report detailing employee and employer taxes for the month. However, any documentation that does not break down the information on a per-employee, per-paycheck basis may result in delays and could necessitate the signing of a waiver.