What are social security wages on w2?

What are social security wages on Form W-2?

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

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

The following explains 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 records the total earnings paid to the employee during the year that are subject to social security tax.

Tax rate and limit. For 2023, the employee portion of social security tax is 6.2%; employers pay the same amount, making a combined rate of 12.4%. There is an annual wage ceiling that determines the maximum earnings subject to this tax — for 2023 the cap is $160,200, so income above that level is not subject to social security tax.

What’s included? Social security wages generally cover most earned pay, including salaries, wages and bonuses. Certain types of compensation, such as contributions to a 401(k) plan, are counted in social security wages even though they may not be subject to federal income tax.

Differences from gross wages . The figure shown in box 3 (social security wages) can differ from box 1 (wages, tips and other compensation) on the W-2. This occurs because some payroll deductions — for example 401(k) contributions or health insurance premiums — reduce the amount subject to federal income tax but do not necessarily reduce social security wages.

How to effectively manage social security wages

Employers must accurately track and report earnings that are subject to social security tax to ensure compliance with federal law and to protect employees’ future benefits.

HR and payroll teams should:

•  Be aware of the social security wage cap — the maximum annual amount of earnings on which social security tax is levied. This cap is adjusted each year for inflation and other economic factors.
• Keep the payroll team updated on legislative changes affecting social security wages. Regular training and briefings help maintain payroll accuracy and compliance.
• Use robust payroll systems that automatically update to reflect current law so social security wages are calculated and reported correctly. This reduces the risk of errors and supports compliance.

Key considerations for companies 

• Confirm payroll accuracy to avoid penalties and to safeguard employee benefits.
• Monitor annual changes to the social security wage cap.
• Be transparent with employees about how their social security wages are calculated and reported.