How is FICA/S wages and withholding calculated?

It’s that time of year again! W-2s are due out early next week and we are just now looking at the numbers. You know who you are!

Have you ever noticed a difference between the Social Security Wages and withholding reported on the Form W-2 and the amounts in the Employee Summary record?

Understanding the relationships between the components listed below can be challenging. This post intends to clarify the inter-relationship between these items and the amounts recorded as Social Security wages and Social Security tax withheld.

Below are the components I discuss:

• The Year-end Wage Report
• The W-2 Validation Report
• The amounts displayed in the Edit W-2 window
• The amounts that print on the W-2
• The amounts that print on the W-3

Payroll Year-end close

1. When the year is closed the year-end wage file is created. The system captures the actual amounts from the employee summary record. The FICA limit and percentage in effect when the year-end wage file is created are also captured.

2. The Year-end Wage Report reads from the year-end wage file, so it shows the actual amounts withheld regardless of the limits

3. The Validation Report does two things

a. Compares the FICA wages recorded in the year-end wage file to the FICA wage limit that was captured when the year-end wage file was created

b. Calculates what FICA withholding should have been in accordance with the FICA wage limit and percentage captured when the year-end wage file was created

c. Any differences are reported on the Validation Report

4. The W-2 form that appears in the Edit W-2 window is reading the year-end wage file, so it shows the actual amounts withheld

5. The amount that appears in the Social Security Wages W-2 box is the lessor of:

a. The Social Security Wages from the year-end wage file or,

b. The FICA limit captured when the year-end wage file was created.

6. The amount that appears in the Social Security Withheld W-2 box is the lessor of:

a. The amount actually withheld as captured in the year-end wage file or,

b. The amount of the FICA limit in the year-end wage file times the FICA % captured in the year-end wage file. This amount is calculated without regard to the amount recorded in the year-end wage file as Social Security wages.

7. The amounts appearing on the W-3 are the sum of the amounts on the W-2s. The W-3 amounts are not the same as the Year-End wage report amounts.

Have fun with it!
Until next post!