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Expanding your business globally is undoubtedly challenging but a smart move.

Say you have decided to hire someone in the USA. It is a great country with a stable economy and a highly skilled workforce. But, you will face severe obstacles if you are unaware of the employment regulations or tax requirements.

For example, social security wages are an integral part of the payroll process in the USA. But, unfortunately, most employers do not have any clear idea about what are social security wages, which earnings are included, what are excluded, and so on.

Simply put, Social Security wages are a portion of an employee’s earnings deducted for Social Security tax purposes. The payment of these taxes contributes to the employee’s coverage under the Social Security system in the USA.

Let’s understand this better with this article.

Social Security Wages Meaning and Overview

One commonly asked question is: Is social security wages gross income?

No, social security wages and gross income are not the same thing. The main difference between Social Security wages and wages is that the former refers to only those earnings subjected to Social Security taxes.

Gross income, on the other hand, refers to an employee’s total compensation, which they receive in exchange for service.

Under IRS guidelines, the employer must deduct Social Security taxes from every wage payment, even if the employee does not expect to be eligible for Social Security or Medicare benefits.

The Social Security tax rate is set at 6.2% for the employer and 6.2% for the employee.

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What is Included in Social Security Wages?

As mentioned earlier, social security wages include any income earned from employment.

These include salaries, minimum wages, bonuses received by an employee, the net earnings from self-employment, and service charges, among other things.

However, there is also a wage base limit for Social Security tax. This limit refers to the maximum wage subject to a particular year's tax. For 2025, the Social Security maximum taxable income limit is set at $176,100.

Exclusions

Certain compensation types are exempted from social security tax, completely or within limits. They are,

Payments made to partners of a partnership
Tips that are under $20 a month
Business travel expenses
Compensation offered to family employees who are minors
Disabled worker wages
Life insurance coverage
Workers’ compensation benefits, and
Any monetary assistance for dependent care, retirement planning services, or education.

Additionally, any pensions, annuities, interests, and dividends from an employee’s savings and investments are not considered earnings for Social Security Purposes. They may be subject to income tax but not to Social Security taxes.

How to Determine Social Security Wages

Moving on, how to calculate social security wages? Well, the process is quite simple. The employee’s taxable gross salary gets multiplied by the Social Security tax rate.

Here is a small example to help you understand this better.

Say you have an employee named Tom who receives a gross income of $85,000. He has a 6.2% Social Security tax deducted from his pay. The federal authorities will then collect $52,70 (6.2% multiplied by $85,000) from Tom. This will help fund the retirement and disability benefits for retirees.

Here is another example of what happens when the gross income exceeds the Social Security taxable wage base.

Say your employee named Susan earns $180,000 gross income. But the base limit in 2025 is set at $176,100. In that case, Susan will only have to pay Social Security tax on $176,100 of her income, and the remaining amount will not be subject to Social Security taxes. She must pay $10918 (6.2% multiplied by $176,100) as her Social Security contribution.

Social Security Wages on Payroll and W2 Form

Here is a detailed explanation of the main components of the W2 form, which also includes social security wages.

Box 1: Wages, Tips and Other Compensation	It includes the taxable income for payments in a particular year.
Box 2: Federal Income Tax Withheld	It contains the federal income tax deducted from the employee’s pay based on their W-4. If the employee has not previously filed the W4 form, this will marked as ‘single and 0’.
Box 3: Social Security Wages	This includes the social security wages, calculated as Federal Taxable Gross + Retirement Deductions.
Box 4: Social Security Tax Withheld	It contains the social security tax deducted from the employee’s pay.
Box 5: Medicare Wages and Tips	The total wages and tips subject to the Medicare component of social security taxes are displayed here.
Box 6: Medicare Tax Withheld	It includes the Medicare tax withheld from the employee’s pay.
Box 7: Social Security Tips	It contains the total reported tips that are subject to Social Security tax.

The W2 form also contains other elements like dependent care benefits, advance EIC payments, and so on.

Practical Implications for Employees and Employers

Understanding social security taxable wages is very important for employees since it directly affects the amount of benefits they receive. By accurately reporting the amount, individuals can ensure they receive the maximum benefit they are entitled to, reflecting their true earnings history.

Similarly, a detailed awareness of social security wages is also important for employers.

Firstly, accurate reporting of these wages is crucial for complying with all federal regulations. Without it, employers and companies will be subject to audits, fines, and other legal consequences.

Secondly, it also helps build goodwill with your employees. When your workers notice that their wages are accurately reported, they develop a sense of trust in the company's administrative operations.

How Skuad Can Help

Understanding concepts like these is very important when hiring internationally. As we mentioned earlier, it can avoid potential legal problems. However, it can also get really confusing with so many elements and nuances of international hiring and different regulations.

An easy way out is to partner with a global employment solution like Skuad.

Skuad’s unified platform has facilitated numerous businesses' international hiring journeys. Whether in the USA, South Korea, or India, we boast expertise in 160+ countries.

Our comprehensive solution allows you to manage the entire employment life, from drafting country-specific labor contracts and digitally onboarding new hires to managing payroll and employee benefits. The best part is that you can do all this while ensuring 100% compliance with the regulations of various countries.

So, book a demo with us today and experience an efficient and successful hiring process.

FAQs

What are considered Social Security wages?

Social Security wages refer to an employee’s earnings provided by their employer that are deducted for Social Security tax purposes.

What is the difference between Social Security wages and wages on w2?

The main difference between Social Security wages and wages on W2 (Social Security wages vs wages) is that the former refers to only a specific portion taxable for Social Security purposes. In contrast, the latter is the total amount of an employee’s compensation taxable for income tax purposes.

How much are Social Security wages on check?

As of 2025, the Social Security for employees and employers is 6.2% each.

Is a 401k included in Social Security wages?

401(k) contributions and withdrawals do not affect an employee’s Social Security benefits.

Does everyone pay Social Security taxes?

In most cases, every employee who works in the United States must pay Social Security and Medicare taxes.

What Are Social Security Wages? A Comprehensive Guide

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