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 used to calculate how much social security tax the employee and the employer each pay, and it also affects the benefits the employee may be eligible for at retirement. Certain types of income are excluded from this calculation — for example, contributions to a 401(k) plan.

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

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

Location on form W-2. Social security wages appear in box 3 of the W‑2. That box shows the total earnings 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 is 6.2%, which employers match, producing a combined rate of 12.4%. There is a maximum earnings threshold to which this tax applies. In 2023 the wage cap is $160,200, so any earnings above that amount are not subject to social security tax.

What's included? Social security wages generally cover most earned pay, such as salaries, wages and bonuses. Note that some forms of compensation — for example, contributions to a 401(k) plan — may be counted 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) can differ from box 1 (wages, tips, other compensation) on the W‑2. That variation often results from payroll deductions — for example 401(k) contributions or health insurance premiums — which can be exempt from federal income tax and therefore change the reported amounts.

How to effectively manage social security wages

Employers must accurately record and report employee earnings that are liable for social security tax to remain compliant with federal law and to protect future employee benefits.

HR and payroll teams need to:

•  Monitor the social security wage cap — the annual maximum amount of earnings that are subject to social security tax. This cap is adjusted each year to account for inflation and other economic factors.
• Keep payroll staff updated on legislative changes affecting social security wages. Regular training and timely updates help maintain compliance and accuracy in payroll.
• Use reliable payroll systems that update automatically to reflect current legislation so social security wages are calculated and reported correctly. This reduces the chance of errors and supports compliance.

Key considerations for companies 

• Ensure payroll calculations are precise to avoid penalties and to safeguard employee benefits.
• Keep up to date with annual changes to the social security wage cap.
• Be transparent with employees about how their social security wages are calculated and reported.