What are Social Security Wages? The Best 2024 Strategy Guide

What are Social Security Wages? The Best 2024 Strategic Guide

What are Social Security Wages? The Best 2024 Strategic Guide

January 29, 2024

SHARE

Facebook
Linkedin
Twitter
Picture of INS Global

Author

Date

Picture of INS Global

Author

Date

Share On :

window.onload = function() { var current_URL = window.location.href; document.getElementById("fb-social-share").onclick = function() { window.open(`https://www.facebook.com/sharer/sharer.php?u+${current_URL}`); }; document.getElementById("tw-social-share").onclick = function() { window.open(`http://www.twitter.com/share?url=+${current_URL}`); }; document.getElementById("in-social-share").onclick = function() { window.open(`https://linkedin.com/shareArticle?url=+${current_URL}`); }; };

Key Takeaways

  1. Social Security wages mean a broad spectrum of income elements, including salaries, wages, bonuses, and commissions, and may also include certain benefits
  2. Calculating an employee’s Social Security wages is not just a legal requirement
  3. International workers based in the US may have different Social Security taxes because of treaties between their home country and the US
Summary

 

 

Today, hiring international workers is an increasingly attractive yet complex idea for companies seeking diverse talents and unique skill sets. For employers not familiar with the intricacies of global labor, understanding concepts like Social Security wages can be a challenge.

This comprehensive guide sheds light on what Social Security wages are, how they play a big role in international employment, and how employers can navigate them simply with the right support.

 

What are Social Security Wages, and Why Are They Crucial?

 

Social Security wages are part of an employee’s salary that pays for the Social Security system, a safety net designed to provide financial security to individuals in various stages of life. This includes retirement, disability, and survivor benefits.

Generally, this term has been used in the past to refer to workers in the US. However, it’s increasingly used abroad to refer to this portion of an employee’s salary, regardless of their location.

For employers thinking about hiring international workers, grasping the essence of Social Security wages is crucial for both compliance and creating good employer-employee relationships. However, knowing exactly what social security wages are can be complex because they may mean different things in different contexts.

 

Defining Social Security Wages – What Falls Under This Definition

 

Social Security wages mean a broad spectrum of income elements, including salaries, wages, bonuses, and commissions, and may also include certain benefits.

Effectively, any compensation received by an employee can fall into this concept. However, employers must accurately identify and account for all forms of income subject to Social Security taxes to ensure compliance with regulations and avoid costly errors.

 

Exclusions from Social Security Wages – What’s Not Included?

 

In the US, money going toward retirement plans, health insurance premiums, and specific benefits like life insurance and relocation expenses are generally not considered as part of Social Security wages.

This may not be the same for employees in other countries, and employers should look at the deductions that make up employee’s share of social security contributions.

 

Calculating Social Security Wages: Why Do I Need to Calculate an Employee’s Social Security Wages?

 

Calculating an employee’s Social Security wages is not just a legal requirement. It also directly impacts the employee’s Social Security benefits. By going through each step of the payroll process accurately, employers add to their employees’ future financial security and ensure they receive the benefits they are entitled to in times of need.

For companies with workers in the US, this is an key part of the payroll process.

For a company outside the US, knowing how much your employees will be subject to social security tax may be the first step in knowing that employee’s labor burden. It’s also important to know when putting together a package for employees being sent or hired overseas.

Both employees and employers should know how much Social Security will affect a worker’s salary. Once you have a better idea of the final cost of working abroad, you can better prepare for its complexities.

 

 

How to Calculate Social Security Wages: A Step-by-Step Example

 

Calculating Social Security wages involves knowing both the wage base and tax rates. The wage base is the max amount of income subject to Social Security taxes.

Employers should apply the right tax rates to the income within this wage base to calculate the Social Security tax.

An Example:

 

To give an example, we can imagine that you have an worker in the US state of Georgia with the following:

  • Annual Salary: $60,000
  • Bonuses and Commissions: $5,000
  • Fringe Benefits: $2,000
  • Health Insurance Premiums: $1,500

 

Step 1: Calculate Total Gross Income

 

Add up the various components of the employee’s income, resulting in the following combined income:

Total Gross Income = Annual Salary + Bonuses and Commissions + Fringe Benefits

or

Total Gross Income = $60,000 + $5,000 + $2,000 = $67,000

 

Step 2: Exclude Exempted Amounts

 

Subtract any amounts from the total gross income as required. In this case, fringe benefits and the employee’s health insurance premiums are not part of their Social Security Tax:

Adjusted Gross Income for Social Security = Total Gross Income − Excluded Items

or

Adjusted Gross Income for Social Security = $67,000 – $2,000 – $1,500 = $63,500

 

Step 3: Determine Social Security Taxable Income

 

Find the amount of salary that is taxable for social security. In 2023, only the first $160,200, after which income is exempt from Federal Social Security taxes.

In this case, as the employee’s annual income does not meet the threshold, the entire amount is subject to Social Security tax.

 

Step 4: Calculate Social Security Tax

 

As of January 2022, the Social Security tax rate is 6.2% for both employers and employees. However, the employer is responsible for giving the full 12.4%, with the employee’s portion taken from their paycheck.

The employer’s portion is not counted toward the employee’s Social Security wages:

Social Security Wages = Social Security Taxable Income × Social Security Tax Rate

Social Security Wages = $63,500 x 0.062

This leaves us with a final total of $3,927.

 

Step 5: Verify Federal Income Tax Withholding

 

Social Security wages may differ from wages subject to federal income tax withholding. Employers should think about the federal income tax rates which apply and what they need to deduct while calculating federal income tax withholdings.

As always, it’s best to consult the latest tax tables or seek advice from a tax professional to ensure total compliance.

 

Determining Social Security Wages on W-2 Forms

 

W-2 forms, which employers in the US provide to employees and then report to the Social Security Administration, play a key role in understanding Social Security wages. Employees are then eligible for Social Security benefits based on this amount.

US-based employers must accurately report an employee’s Social Security wages on the W-2 forms as part of the payroll process.

 

Frequently Asked Questions about Social Security Wages

 

What are the differences between Social Security wages and Federal Income Tax withholding?

 

Social Security wages may differ from wages subject to federal income tax withholding. Various deductions apply differently to these two calculations.

 

Do international workers have the same Social Security obligations as domestic employees?

 

International workers based in the US may have different Social Security taxes because of treaties between their home country and the US. These differences may also exist for employees stationed in any country due to the complex web of international tax treaties. Employers should be aware of these treaties and any other factors affecting their tax status to ensure compliance.

 

How do fringe benefits impact Social Security wages?

 

Certain fringe benefits may be excluded from Social Security wages, but this varies. Employers should carefully assess the impact of fringe benefits on Social Security and adjust as needed. However, it’s always a good idea to seek the advice of professionals if you’re unsure about which benefits may or may not be part of Social Security wages.

 

Can international workers claim Social Security benefits in their home country and their country of employment?

 

This will depend on many factors, such as the countries involved and the specific agreements between them. Many countries provide exemptions for foreign workers already paying Social Security funds in their home country.