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Tax Department Tip of the Month

Tax Tip for March, 2010

Taxable Wage Calculations

Employers frequently ask questions concerning the proper calculation of taxable wages, Line 14 of Form C-3, Employer's Quarterly Report. The first $9,000 paid to an employee in a calendar year is the annual "taxable wages" for an individual and the key to the basic taxable wage formula.

The following example demonstrates the amount of total wages, taxable wages and tax contributions due for an individual for all four quarters of a calendar year. This example assumes an employer had only one employee earning $2,500 a month in 2009.

Taxable Wage Example - One Employee
Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Total Wages Paid 7,500.00 7,500.00 7,500.00 7,500.00
Wages over $9,000.00 0.00 6,000.00 7,500.00 7,500.00
Taxable Wages Paid 7,500.00 1,500.00 0.00 0.00
Effective Tax Rate 2.70% 2.70% 2.70% 2.70%
Amount of Tax $202.50 $40.50 0.00 0.00

This example illustrates how to arrive at the taxable wage amount for an employer with multiple employees.

Taxable Wage Example - Multiple Employees
  1st Qtr Total 1st Qtr Taxable 2nd Qtr Total 2nd Qtr Taxable
Employee A 5,000.00 5,000.00 5,000.00 4,000.00
Employee B 10,000.00 9,000.00 10,000.00 0.00
Employee C 3,000.00 3,000.00 3,000.00 3,000.00
LINE 13 Total Wages 18,000.00   18,000.00  
LINE 14 Taxable Wages   17,000.00   7,000.00

An employer must file reports for each quarter even if he has zero taxable wages and does not owe any tax. It is important that Line 14 contain either the taxable wage amount or a 'zero' if there are no taxable wages. Although reimbursing employers do not pay this tax, they must also submit an Employer's Quarterly Report to report wages paid to their employees.

Taxable wages reported by a predecessor account may be used in arriving at the $9,000.00 taxable wage base for the successor account during the same calendar year provided there has also been a transfer of compensation experience between accounts.

If you have questions or need additional information, please e-mail the TWC Tax Department at tax@twc.state.tx.us.

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Last Revision: March 01, 2010