What are social security wages on w2?

What are social security wages on Form W-2?

Social security wages are the earnings shown on an employee’s W-2 that are liable for social security tax. This amount is important because it determines the social security tax paid by both the employee and the employer, and it influences the benefits the employee may receive at retirement. The calculation excludes certain income types, for example contributions to a 401(k) plan.

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

Below is a summary of how social security wages are recorded and calculated:

Location on Form W-2. Social security wages are reported in box 3 of the W-2. That box shows the total wages paid to the employee during the year that are subject to social security tax.

Tax rate and limit. In 2023 the employee portion of Social Security tax is 6.2%, which employers match—bringing the combined rate to 12.4%. There is an annual wage ceiling subject to this tax: in 2023 the cap is US$160,200, so earnings above that amount are not subject to Social Security tax.

What is included? Social security wages typically include earned pay such as salaries, wages and bonuses. Certain compensation items, including employee contributions to a 401(k) plan, are counted in social security wages even when they are not subject to federal income tax.

Differences from gross wages. The figure in box 3 (social security wages) may differ from the amount in box 1 (wages, tips, other compensation) on the W-2. Differences arise because some payroll deductions—such as 401(k) contributions or certain health insurance premiums—reduce federal taxable income but do not always reduce social security wages.

How to manage social security wages effectively

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

HR and payroll teams should:

•  Monitor the Social Security wage cap—the maximum annual earnings subject to social security tax. The cap is adjusted each year for inflation and other economic factors.
• Inform payroll staff promptly about legislative changes affecting social security wages. Regular briefings and training help maintain payroll accuracy and compliance.
• Use robust payroll systems that update automatically to current law so social security wages are calculated and reported correctly. This reduces the risk of errors and supports compliance.

Key considerations for companies 

• Ensure payroll accuracy to avoid penalties and to safeguard employee benefits.
• Keep updated on annual adjustments to the social security wage cap.
• Be transparent with employees about how their social security wages are calculated and reported.