What are social security wages on w2?

What are social security wages on Form W-2?

Social security wages are the amounts reported on an employee’s W-2 that are subject to social security tax. This amount is important because it determines the social security tax owed by both the employee and the employer and shapes the benefits the employee may receive in retirement. Certain types of income are excluded from this total, for example contributions to a 401(k) plan.

How are social security wages on the W-2 form calculated?

Below is an overview of how social security wages are reported and calculated:

Location on Form W-2. Social security wages appear in box 3 of the W-2. This box reflects the total wages paid during the year that are subject to Social security tax.

Tax rate and limit. For 2023, the employee share of Social security tax is 6.2%, which employers match for a combined 12.4%. There is a wage base limit that applies — for 2023 the cap is $160,200, so income above that threshold is not subject to Social security tax.

What’s included? Social security wages generally cover most earned compensation, including salaries, wages and bonuses. At the same time, certain items of compensation, such as contributions to a 401(k) plan, may be included in Social security wages even if they are not taxed as federal income.

Differences from gross wages. The figure in box 3 (Social security wages) may differ from the amount shown in box 1 (wages, tips, other compensation) on the W-2. Differences can result from payroll deductions — for example 401(k) contributions or health insurance premiums — that affect federal taxable wages differently than they do Social security calculations.

How to effectively manage social security wages

Employers must accurately track and report earnings subject to Social security tax to meet federal compliance obligations and protect employees’ future benefits.

HR and payroll teams need to:

•  Be aware of the Social security wage cap, which sets the annual maximum of earnings subject to Social security tax. The cap is adjusted each year in response to inflation and other economic factors.
• Keep payroll staff informed of legislative changes that affect Social security wages. Regular training and timely updates help maintain compliance and payroll accuracy.
• Deploy dependable payroll systems that automatically incorporate current laws so Social security wages are calculated and reported correctly. This approach reduces errors and supports compliance.

Key considerations for companies 

• Verify payroll calculations to avoid penalties and to safeguard employee benefit entitlements.
• Monitor yearly adjustments to the Social security wage cap.
• Be transparent with employees about how their Social security wages are calculated and reported.