What are social security wages on w2?

What do social security wages on a form W-2 mean?

Social security wages are the earnings recorded on an employee’s W-2 that are subject to social security tax. This figure is important because it determines how much social security tax both the employee and the employer pay, and it influences the benefits the employee may be entitled to in retirement. Certain types of income are excluded from this calculation, such as contributions to a 401(k) plan.

How are social security wages on a W-2 calculated?

Below is a breakdown of how social security wages are reported and worked out:

Location on Form W-2 . Social security wages are shown in box 3 of the W-2. That box displays the total earnings for the year that are liable for social security tax.

Tax rate and limit. In 2023, employees pay 6.2% in Social Security tax, with employers matching that amount for a combined 12.4%. There is an annual wage cap: in 2023 the cap was $160,200, so earnings above that amount are not subject to Social Security tax.

What’s included? Social security wages cover most types of earned pay — salaries, wages and bonuses. Some forms of compensation, for example contributions to a 401(k) plan, can be included in social security wages even if they are not subject to federal income tax.

Differences from gross wages. The figure in box 3 (social security wages) may not match box 1 (wages, tips and other compensation) on the W-2. This can happen because certain payroll deductions — such as 401(k) contributions or health insurance premiums — are exempt from federal income taxes and can affect box 1 differently.

Managing social security wages effectively

Companies must accurately track and report employee earnings that are subject to social security tax to remain compliant with federal law and to protect future employee benefits.

HR and payroll teams should:

•  Be aware of the social security wage cap — the maximum annual earnings on which social security tax is charged. This cap is updated each year to reflect inflation and other economic factors.
• Keep payroll staff updated on legislative changes affecting social security wages. Regular training and briefings help maintain accurate payroll and compliance.
• Use robust payroll systems that automatically incorporate current laws to calculate and report social security wages accurately. This reduces the risk of errors and supports compliance.

Key considerations for companies 

• Make sure payroll systems are accurate to avoid penalties and to safeguard employees’ benefits.
• Monitor annual changes to the social security wage cap.
• Be transparent with employees about how their social security wages are calculated and reported.