The amount of money from your wage that your employer deducts and subjects to the FICA tax is known as the Social Security Wages. At the time of your retirement, Social Security Administration will use the statements of these wages to determine the benefit calculations.
Even in cases where an employee is not qualified for social security benefits, the employer still needs to deduct the wages and fill up the W-2 form.
What are Social Security Wages?
The following categories are included in the Social Security Wages:
Paid time off
Bonuses
Commissions
Sick time
Over 20$ monthly leave
Salaried and hourly wages
Other payment kinds (such as services, goods, and food)
Elective retirement contributions.
How are W-2 Taxable Wages for Social Security Determined?
The Old Age, Survivors, and Disability Insurance (OASDI) program of Social Security places a limitation on the yearly wages that are subject to taxation.
Both the earning and yearly limitation is taken into account while calculating benefits. Since the national average pay varies yearly, this also affects the limitation, which is adjusted accordingly. The contribution and benefit basis is capped yearly, and this sum is called the "taxable maximum."
This baseline is $160,200 for salary in 2023. The statutory OASDI tax rate for earnings paid in 2023 remains 6.2 percent for employers and employees.
Therefore, in 2023, a worker whose annual salary is at least $160,200 would pay $9,932.40 into the OASDI program in addition to the same amount paid by the employer. In 2023, the OASDI tax rate on self-employment income will be 12.4%.
Is All of Your Social Security Check Subject to Taxes?
No. Your total income will determine the amount of your Social Security benefits that are subject to taxation. Your total income is equal to half of your Social Security payments, your adjusted gross income, and any interest you receive that is not subject to taxation.
Up to half of your benefits may be subject to income tax if your joint income is between $25,000 and $34,000 and you file your taxes as a single individual. Up to 85% of your benefits could be subject to taxes if your joint income is over $34,000. Your whole Social Security check will be tax-free if your annual income is less than $25,000.
If you and your spouse file a joint tax return and your joint income is between $32,000 and $44,000, you may owe income tax on as much as half of your benefits.
Up to 85% of your benefits may be subject to taxation if your joint income is $44,000 or higher. You won't owe any taxes on your Social Security check as long as your total income is under $32,000.
What is Excluded From Social Security Wages?
The following factors are excluded from the social security wages.
Payments made to disabled workers after the year they become eligible for disability benefits.
Expenses incurred by employees on official business travel are compensated up to the maximum allowed by government regulations (per diems or mileage).
Workers under the age of 18 or over 21 who are paid by their families to conduct domestic labor are entitled to receive compensation.
Some "excess" fringe benefits that are taxable on an excess of the fair market value of the benefit over the sum of an amount paid for it by the employee and any amount that's excludable by law
Commissions paid to licensed real estate agents and commissions paid to direct sales representatives are examples of statutory non-employee payments that fall below the $20 monthly tip threshold.
Compensation for injured employees.
For the Social Security portion of the FICA tax, wages are subject to a cap that varies from year to year. Earnings begin accruing anew toward this "wage basis" on January 1 of the next year.
Who is Subject to Social Security Wages?
Retirees and people who cannot work because of illness or injury are eligible to receive Social Security payments. If a person can no longer work, Social Security may be their sole reliable source of income, especially if they have a limited work history or low wages.
How are W-2 Taxable Wages for Social Security Determined?
You can calculate the Social security wages of an employee by following the steps below:
Take the gross pay amount,
Take any exclusion amount,
Subtract the exclusion from the gross amount.
If an employee earns an hourly wage is $3000, the commission is $500, and the tip is $15.
So, the Social Security wage will be ($3000+$500+$15)-$15= $3500.
Are Socials Security Wages the same as Gross Income?
A maximum amount of yearly earnings or earned income can be taxed, known as a tax cap; in 2022, this threshold is set at $147,000, and in 2023, it rises to $160,200.
