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 figure is important because it determines the social security contributions made by both employee and employer and affects the benefits the employee may become eligible for at retirement. The calculation omits certain types of income, such as contributions to a 401(k) plan.

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

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

Location on Form W-2 . Social security wages appear in box 3 of the W‑2. That box displays the total earnings paid to the employee during the year which are subject to social security tax.

Tax rate and limit. For 2023, the social security tax charged to employees is 6.2%, with employers paying the same amount — a combined rate of 12.4%. There is, however, a maximum taxable earnings threshold. In 2023 the cap is $160,200, so earnings above that figure are not liable for social security tax.

What’s included? Social security wages cover most forms of earned pay — salaries, wages and bonuses. Some forms of compensation, including contributions to a 401(k) plan, are counted as social security wages even when they are exempt from federal income tax.

Differences from gross wages . The figure in box 3 (social security wages) may not match box 1 (wages, tips, other compensation) on the W‑2. This can occur because certain payroll deductions — for example 401(k) contributions or health insurance premiums — can be exempt from federal income tax.

How to effectively manage social security wages

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

HR and payroll teams need to:

•  Be aware of the social security wage cap, the maximum annual earnings subject to social security tax. This cap is adjusted each year to reflect inflation and other economic factors.
• Keep payroll staff informed about legislative changes affecting social security wages. Regular training and updates help maintain accuracy and compliance in payroll processing.
• Adopt reliable payroll systems that automatically refresh with current legislation to correctly calculate and report social security wages. Doing so reduces errors and supports compliance.

Key considerations for companies 

• Make sure payroll records are accurate to avoid penalties and to protect employees' entitlement to benefits.
• Remain up to date with annual revisions to the social security wage cap.
• Be transparent with employees about how their social security wages are calculated and reported.