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 matters because it determines how much Social Security tax both the employee and the employer pay, and it also affects the benefits the employee may be eligible for at retirement. The calculation excludes certain income types, such as contributions to a 401(k) plan.

How are Social Security wages on the W-2 calculated?

Below is a breakdown of how Social Security wages are reported and calculated:

Location on form W-2 . Social Security wages are shown in box 3 of the W-2. That box records the total wages paid to the employee during the year that are subject to Social Security tax.

Tax rate and limit. In 2023, the Social Security tax rate for employees was 6.2%, and employers matched that amount for a combined rate of 12.4%. There is a cap on wages subject to the tax; in 2023 that cap was $160,200, so earnings above that figure were not subject to Social Security tax.

What’s included? Social Security wages cover most types of earned income, including salaries, regular wages and bonuses. Some compensation items, such as contributions to a 401(k) plan, are counted as Social Security wages even when they may be exempt from federal income tax.

Differences from gross wages . The figure in box 3 (Social Security wages) may differ from the figure in box 1 (wages, tips, other compensation) on the W-2. This can happen because some payroll deductions—like 401(k) contributions or health insurance premiums—are exempt from federal income tax.

How to effectively manage Social Security wages

Employers must accurately track and report employee earnings that are subject to Social Security tax to meet federal requirements and safeguard employees’ future benefits.

HR and payroll teams should:

•  Be aware of the Social Security wage cap, which is the maximum annual amount of earnings on which Social Security tax is levied. The cap is reviewed each year and can change because of inflation and other economic factors.
• Keep payroll staff up to date with legislative changes affecting Social Security wages. Regular briefings and training help preserve accuracy and compliance in payroll.
• Use robust payroll systems that update automatically to current law so Social Security wages are calculated and reported correctly. That reduces errors and supports compliance.

Key considerations for companies 

• Make sure payroll calculations are accurate to avoid penalties and to protect employee benefits.
• Monitor annual changes to the Social Security wage cap.
• Be transparent with employees about how their Social Security wages are worked out and reported.