Taxable Wages vs Subject Wages

Wages are monetary compensation given to an employee or independent contractor for work done. Payment can be made at a fixed salary rate or hourly rate. Simple enough? Perhaps. There are different types of wages to consider, the most common being taxable wages and subject wages.

Taxable Wages

Taxable wages, or Personal Income Tax (PIT) wages, are cash and non-cash payments that are subject to local, state, and federal withholding tax. The amount that can be taxed is an employee’s gross pay - i.e., before taxes. Once these wages are taxed, that person’s pay becomes their net pay. Wages are reported on an individual’s W-2 for a calendar year, with gross and net amounts both accounted. It is important to note bonuses and commissions are also taxable income. Child support and welfare are examples of non-taxable wages.

Subject Wages

Wages are generally all reportable for Federal and State Unemployment Taxes (FUTA and SUTA). However, certain types of deductions have special treatment when it comes to taxes. These are known as subject wages. An example would be the Cafeteria Plan, a program that lets employees contribute a certain amount of their gross income to a designated account, such as a Health Spendings Account, before taxes are calculated. These deductions can be excluded for (FUTA), thus making it a subject wage. Subject wages are reported on an individual’s W-2 as gross earnings and on the Unemployment Compensation Report as gross wages. States consistently do not follow federal tax laws, so it’s important to research each state when it comes to subject wages.