Determination

• An employee's paid Social Security tax is not a part of her wages, nor is it deducted from the earnings reported on her W-2. Social Security tax is separate from her reportable wages.
  
  

Reportable Wages

• Reportable wages include the employee's taxable income for the year before taxes are deducted. Taxable income is the employee's wages that are subject to federal and, if applicable, state, city and local income tax. Taxable income does not include nontaxable wages, such as retirement contributions under a section 401k plan or a qualified health flexible spending arrangement, such as a health or accident plan. It includes wages, tips and other compensation paid to the employee. The employer puts the employee's reportable wages in box 1 of the W-2.
  
  

Social Security Wages

• Social Security wages include the employee's income (prior to payroll deductions) that is subject to Social Security tax. For tipped workers, the employer does not include allocated tips and Social Security tips in the employee's Social Security wages. It puts Social Security wages in box 3 of W-2.
  
  

Social Security Withheld

• For 2011, employees are required to pay 4.2 percent of gross income, up to $106,800 for the year; employers pay 6.2 percent. The employer puts the employee's Social Security tax withheld in box 4 of the W-2.
  
  

Social Security Tips/Allocation

• Social Security tips are the employee's tips that are subject to Social Security tax. If employees' tips are below the required minimum percentage of gross sales, the employer must allocate tips by assigning an extra amount to each worker so that his reported tips are not less than the required percentage. The employer puts the employee's Social Security tips in box 7 of the W-2 and allocated tips in box 8.
  
  

Considerations

• If the employee's reportable wages or taxes paid are incorrect on her W-2 form, the employer must prepare a corrected W-2 (W-2c) and file it with the Social Security Administration. The employer also gives the employee a copy in case she needs to amend her tax return.